Ukraine war seen pushing chip shortage well into 2023

If you are struggling to lay your hands on that car you ordered months ago, blame it on Russia.

Moscow’s invasion of Ukraine has made it harder for companies to source neon gas, critical for the lasers used to make chips, and palladium, which is used in other manufacturing stages, exacerbating the global shortage of chips used in everything from cars to smartphones.

The global chip shortage began in 2020. While Covid-19 drove up demand for gadgets and cars as people didn’t have a chance to spend on travel or other services, pandemic-related lockdowns forced chipmakers to shutter their factories, thereby hurting supply.

“The situation was expected to improve in 2022 and 2023,” as original equipment manufacturers started to retool their supply chain and semiconductor companies started boosting capacity to cater to the elevated demand, P N Sudarshan, Partner and TMT Industry leader, Deloitte India, said. “But the current geopolitical situation in Ukraine is threatening to extend the shortage.”

Read | India to consume semiconductors worth $80bn: MoS IT

Around half of the global semiconductor-grade neon and palladium supply comes from Ukraine and Russia, and the current crisis has hurt their supply and pricing, industry watchers told DH.

“The demand for chemicals and equipment has gone through the roof and the wait time, too, has gone up from a couple of months to six months to a year,” said Navakanta Bhat, Dean of the Centre for Nano Science and Engineering at the Indian Institute of Science. “(Chip) manufacturers, in some cases, are saying they don’t even want to take orders.”

The trend has led to delays in the launch of products including computers, laptops, tablets, mobiles, servers, industrial products, defence systems, and automobiles.

“The global geopolitical situation has disrupted the supply chain and it has gone back to what it was about six months ago,” Bhat lamented.

Some experts expect the chip shortage to ease only in the back half of 2023.

“Earlier, it was the middle of this year, but now all of them have revised the timeline to the middle of next year,” said HCL Technologies co-founder Ajai Chowdhry, who is a member of the government-appointed advisory committee of the $27.3-billion Indian semiconductor industry.

The trend is forcing many companies to tweak their production strategies.

For instance, the $100-billion Indian auto industry is figuring out minimisation of chip usage by cutting down on some of the basic features powered by the component in cars, said Kulraj Ashpnani, Principal, Dhruva Advisors LLP.

India’s largest carmaker Maruti Suzuki India Ltd (MSIL) has been adjusting its production schedules to make high-demand models on priority and working closely with vendors to maximise component supplies.

“Parallelly, our dealers are also keeping customers updated on the estimated time for their vehicle delivery,” said Shashank Srivastava, Senior Executive Director - Marketing & Sales, MSIL.

Rival Tata Motors also said it applied “smart allocation across models” to maximise production.

“We have also developed alternative architecture for the affected parts and collaborated with the supplier partners to fast-track the de-risking measures,” said Rajesh Khatri, Vice President, Operations, Tata Motors Passenger Vehicles Ltd.

March data from the Society of Indian Automobile Manufacturers (SIAM) revealed that sales across all segments were below even the 2018-19 level and pinned the immediate challenge on semiconductor availability.

“The supply situation in semiconductors is expected to remain disrupted in 2022 and may ease out once new capacities come up, geopolitical situation stabilises and lockdown restrictions get lifted in China,” said Kamal Nandi, business head and executive vice president of Godrej Appliances.

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