Semiconductor Shortage Is 'Going to Bite' Longer, Has a Russia-Ukraine Connection: Analyst

Zinger Key Points
  • Chip industry faces supply constraints due to the war in Ukraine
  • Hopes are that slowdown is shallow, thanks to governmental and central bank policy support - Analyst
  • The SOXX is sown about 30% year-to-date

Semiconductor supply isn't likely to improve any time soon and the war in Ukraine has a role to play in the predicament, Vinay Gupta,  Asia-Pacific research director at IDC said, according to CNBC.

Chip Slowdown's Going to Bite: Inflationary pressure and expectations of further monetary policy tightening have led to a consumer-led slowdown in the chip industry, Gupta told the media outlet.

The analyst noted that IT spending is slowing, specifically consumer IT spending, even as enterprise spending is holding out. 

The slowdown, along with higher interest rates, is "going to bite," Gupta reportedly said.

"But the hopes are that this will be a shallow slowdown because the government and central banks are trying to balance the rising inflation and … interest rates."

Gupta sees hiring and spending slowdown across Asia's tech sector, starting in late 2022 or early 2023, if the situation doesn't improve by then.

Read Benzinga's April story on Intel (NASDAQ: INTC) CEO's warning of chip shortage

The Russia-Ukraine Connection:  The war in eastern Europe putting strain on chip supplies, Gupta was quoted as saying.

Russia and Ukraine, according to the analyst, are the biggest exporters of krypton, a gas used in chip production. More than half of the world's neon, also used for making semiconductors, is produced by a handful of companies in Ukraine, CNBC said, citing Peter Hanbury,  a chip analyst at Bain & Co. 

Neon is used for lasers needed for lithography – a process in which machines carve patterns onto tiny pieces of silicon.

Gupta also sees supply chain disruptions and rising costs driving up average selling prices of devices. Infrastructure vendors will then pass on the increases to customers, he added.

Benzinga's Take:  Asia is home to foundries such as Taiwan Semiconductor Manufacturing Co Ltd TSM and Samsung, which control about  75% of the foundry market. A potential slowdown in Asia will likely have ramifications for end markets. The letup has already hurt U.S. chip stocks, as reflected by the 30% year-to-date loss incurred by the iShares Semiconductor ETF SOXX.

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Posted In: NewsTechMediaIDCInflationRussia-Ukraine WarsemiconductorsVinay Gupta
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