Neon Shortage

Issues related to Science & Technology

Source: The Hindu

Currently in the news:

Due to a Russian strike, Ukraine's two largest neon producers, which together produce almost half of the world's supply of the main component (Neon) used in the production of semiconductor chips, have suspended operations.

Ukraine and the Neon

Two Ukrainian enterprises produce 45 percent to 54 percent of the world's semiconductor grade neon, which is essential for the lasers that are used to manufacture semiconductor chips.

Last year, the global usage of neon for chip fabrication reached around 540 metric tonnes.

Pre-invasion, Ingas (a Ukrainian firm) was producing 15,000 to 20,000 cubic metres of neon each month for clients across the world, including Taiwan, South Korea, Chinese consumers, the United States, and Germany, with approximately 75% of its output going to the chip sector.

Ukrainian neon is a by-product of the steel producing industry in Russia.

The gas, which is also used in laser eye surgery, is also manufactured in China, although the price of the gas in the country is gradually increasing.

According to the United States International Trade Commission, neon prices increased by 600 percent in the months leading up to Russia's 2014 takeover of the Crimean peninsula from Ukraine.

Concerns pertaining to:

Lack of supply: The shutdown casts a shadow over the world's chip manufacturing, which was already in short supply as a result of the coronavirus epidemic, which boosted demand for cell phones, laptop computers, and eventually automobiles, prompting some companies to reduce production.

Prices, which were already under pressure following the epidemic, have risen by as much as 500 percent.

Output might be hampered: While estimates of the quantity of neon supplies chipmakers have on hand vary greatly, it is possible that production will be hampered if the conflict continues.

It is anticipated that there will be further limitations on the broader supply chain as well as an inability to manufacture the end-product for many major customers due to a shortage of high-end items.

Additional raw materials: It is unclear if the firms will be able to get additional raw materials for the production of neon.

The ramifications/consequences of a lack of semiconductors

Impact on electronic device production: A shortage of supplies has a knock-on effect on sales of automobiles, refrigerators, laptop computers, televisions, and other electronic gadgets.

Automobile manufacturing is affected: As a result of the semiconductor scarcity, certain domestic and international automobile manufacturers have been forced to reduce output and temporarily cease production.

This has further exacerbated the difficulties faced by the car sector, which was already battered by COVID-induced outages.

The resulting production interruptions will only serve to further postpone the industry's comeback.

Inflation: The lack of semiconductors will almost certainly have a direct impact on consumers. It has caused significant disruption to the worldwide supply chain and has limited the ability of electronics manufacturers to produce.

Because chip costs are growing, the cost of electronic gadgets is also rising as a result of the increase in chip prices.

India has taken steps to increase its semiconductor manufacturing capacity.

An incentive programme of Rs 76,000 crore (about $10 billion) has been approved by the Indian government to entice multinational chipmakers to establish facility-based operations (FAOs) in the country.

The government would provide qualifying display and semiconductor manufacturers with financial assistance equal to up to 50 percent of the project's cost, helping them to offset the high expenses of establishing a facility.

In addition to assisting the country in reducing its reliance on imports, the strategy to increase semiconductor manufacturing will attract significant investments and result in the creation of a big number of employment.

The recent statement by Tata Group that it will enter the semiconductor manufacturing business has been met with enthusiasm.

Micron Technologies, a memory chip manufacturer located in the United States, has announced that it will establish a Center of Excellence in memory and storage systems in India.

Apple relies on Micron as a significant supplier.

The Best Way Forward:

Companies in other parts of the world may start producing neon, but it would take nine months to two years to reach full capacity.

The United States is now exploring for alternate suppliers for its chips, and India, with its cheap labour costs, might be a viable option to China and Taiwan.