Atop the civilian death and displacement from the ongoing Russian invasion of Ukraine, there will likely be an impact on global energy markets with a spillover impact on semiconductor shortages and prices, according to chip analysts.
Some experts also worry that Russia’s massive movement of troops and armaments into Ukraine could embolden China to take a similar aggressive path and invade Taiwan, an island nation where more than 20% of the world’s semiconductors are manufactured.
“The events of the last week really do not bode well with regard to energy prices,” said Dale Ford, chief analyst at the Electronic Components Industry Association. “We cannot ignore what’s happening in Ukraine and Russia and the global implications that has for the [chip] supply chain.”
Ford continued during an online discussion sponsored by the Semiconductor Industry Association on Monday: “While the Ukraine and Russia are not major producers or consumer of electronics, they do play a critical role in the energy space and raw materials prices. The challenges that creates is very significant for our industry. The indirect impact that [conflict] will play out through the world’s financial systems and supply chains overall is very significant and cannot be ignored.”
Ford said China could use the Russian invasion as a model for an aggressive move against Taiwan where tensions have been brewing for decades. “The nightmare I’ve had is if China now uses this [Russian invasion] as a pretext to move on Taiwan, the problems with Ukraine and Russia will be a faint memory,” he added.
Elsewhere on Monday, the chief economist for the National Association of Manufacturers worried about the Ukraine war’s impact on growth. “The events in Russia and Ukraine pose a notable downside risk to global growth, which could impact the outlook moving forward, although the extent of this threat will hinge on what happens in coming days and weeks,” wrote NAM’s chief economist Chad Moutray.
Roger Entner, an analyst at Recon Analytics, has also worried recently that China could be emboldened to move against Taiwan by Russia’s aggressive steps in the Ukraine. However, he said economic sanctions imposed on Russia by European nations, the U.S. and other allies recently “have shown China what they can expect if they invade Taiwan.”
The sanctions on Russia are “massive and unprecedented…and have teeth,” Entner added, but hurt the West also. “They show we are willing to make sacrifices when we have to.” Energy prices are expected to surge even further than the rate of inflation which has forced up prices for vehicles at the gas pump.
The sanctions “impressively dispel the notion of a weak and toothless West,” Entner added. “There is a lot less on the line for the West if Ukraine is independent than if Taiwan stays independent.”
Despite the worries about energy prices, Ford joined other experts on the SIA panel with projections of growth in semiconductor revenues and unit shipments in 2022 of about 16% over 2021.
“We feel very bullish for [chip] industry prospects in 2022,” said Andrea Lati, vice president of market research for VLSI Research. However, he said chip shortages do continue to persist.
“We are seeing growth, but shortages are still impacting the market and probably will have an impact even in 2022,” Lati said. Integrated Circuit “inventories are rising but we believe supply is still tight.” As companies have adapted to shortages they have also shifted their inventory management philosophy.
“Companies are shifting from ‘just in time’ to ‘just in case,’ he said.
Growth has been so strong in chip sales in recent years that some analysts are projecting annual revenues globally will surpass $1 trillion in 2030, five years sooner than recent estimates. The SIA said 2021 revenues were $556 billion, an increase of 26% over 2021, with 1.15 trillion chips shipped.
Doomsday prophecy for China-Taiwan
Ford outlined the fallout of a China attack on Taiwan for Fierce Electronics: “The possibility of a China attack to assert control over Taiwan is very real” and “would be highly likely to cause severe damage to the supply of the most advanced semiconductors. A hot war would place the semiconductor facilities of TSMC and UMC in Taiwan at great risk of damage.”
The current discussion of a boycott of natural gas supplies from Russia might have implications in a Taiwan attack by China, he said. “I would expect a similar push to be made regarding supplies of semiconductors from Taiwan and China if Taiwan were to be attacked,” he said. ”There is even the risk that the Taiwanese fabs could be deliberately sabotaged in order to prevent the most advanced technology from falling into China’s hands.”
Together TSMC and UMC manufacturer roughly 20% of the global supply of chips, according to SIA, while TSMC with fabs around world supplies half of all chips.
Also, TSMC along with Samsung dominate the global supply of leading edge semiconductor technologies with production of 5nm chip nodes. “If TSMC is lost as a supplier, the leading edge chips used in the most powerful electronics products would be lost until the capacity could be restored in another location, and that would take at least two years to replace,” Ford said.
“If the main supply of leading edge semiconductors were lost, the global economy would take a major hit,” Ford added. “I won’t want to sound like a doomsday prophet. However, the many investments being made by TSMC, Samsung and Intel in the U.S. would seem to point to a shared concern about the reliability of supply if it so highly dependent on Asia and Taiwan.
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