Overview

A report released in early February by Techcet, a market research company, provides a breakdown of the Russian and Ukraine-source material critical to the semiconductor manufacturing process:

• Ukraine supplies over 90% of U.S. semiconductor-grade neon.  Neon is a critical material for the operation of the lasers used to manufacture chips.   According to Techcet, Neon is a byproduct of Russian steel manufacturing.  It is then purified in Ukraine.
• Russia provides 35% of U.S. palladium, which is used in sensors and memory.
• Other materials procured from the region include C4F6, Helium, and Scandium.

Russia may retaliate against the U.S. threat of trade sanctions and export curbs by blocking access to key materials like neon and palladium.  This type of supply chain-based retaliation has become a priority concern for the White House.  According to Reuters “Peter Harrell, who sits of the White House’s National Security Council, and his staff have been in touch with members of the chip industry in recent days, learning about their exposure to Russian and Ukrainian chipmaking materials and urging them to find alternative sources, the people said.”   The White House has been encouraging a broad diversification of the supply chain in the event Russia limits access to these key materials.

Joe Pasetti, vice president of global public policy at the chip and electronics manufacturing suppliers group SEMI, sent an email to [SEMI] members this week gauging exposure to the vital chipmaking supplies, according to a copy obtained by Reuters.  “As discussed on today’s call, please see the attached document … regarding Russian/Ukrainian production of a number of semiconductor materials,” he wrote, referencing the summary by Techcet on C4F6, Palladium, Helium, Neon and Scandium from the troubled region. “Please let me know if potential supply disruptions to any of them are a concern for your company.” (1)

US-Europe Supply Chain Interdependencies

Organizations are encouraged to review dependencies on suppliers from the region (Source: Interos, Inc.)

Founded in 2005 and located in Arlington, VA Interos provides a  SaaS platform that uses artificial intelligence to model supply chains and the ecosystems of complex businesses into a map, with detail on every supplier.

An Interos analysis of global relationship data (with the Interos platform and data from thousands of U.S and European companies doing business in Russia and Ukraine) revealed the following:

• More than 1,100 U.S.-based firms and 1,300 European firms have at least one direct (tier-1) supplier in Russia.
• More than 400 firms in both the U.S. and Europe have tier-1 suppliers in Ukraine.
• Software and IT services account for 12% of supplier relationships between U.S. and Russian/Ukrainian companies. About 9% account for trading and distribution services and 6% for oil and gas. Steel and metal products account for other everyday items purchased from the two countries.
• The proportion of U.S. and European supply chains that include tier-1 Russian or Ukrainian suppliers is relatively low, about 0.75%. This figure increases substantially when incorporating indirect relationships with suppliers at tier 2 and tier 3.
• More than 5,000 firms in the U.S. and Europe have Russian or Ukrainian suppliers at tier 3. This represents 2.76% and 2.37% of their respective supply chains.
• More than 1,000 firms in the U.S. and Europe have tier-2 suppliers based in Ukraine. These companies are in turn dependent on 1,200 dependent on suppliers at tier 3.

According to the Chartered Institute of Purchasing & Supply (CIPS) website, “US and European export controls could exacerbate commodity cost pressures. ‘The use of such controls to restrict certain companies or products from supply chains has soared over the last few years.  While many have been aimed at Chinese companies, a growing number of Russian firms have been earmarked for export controls for ‘acting contrary to the national security or foreign policy interests of the United States’.”

What Next?

Supply Chain:  Your company, organization, or government agency should review your interdependencies with Russian and Ukrainian suppliers – with an eye towards inventory levels, resilience and continuity with key suppliers, and the sourcing and qualification of alternatives to key materials critical to operations, production, services, and manufacturing equipment.

For an analysis of the strategic impact of the ongoing Global Supply Chain gridlock, see In 2022, the Strategic Impact of Global Intermodal Supply Chain Gridlock on the IT Supply Chain Remains High.

Cybersecurity:  An increase in cyberattacks on the IT supply chain is integrated into the overall threat facing the raw materials supply chain. Cyber-attacks may also be directed at critical infrastructure crucial to the IT Supply Chain.   See A Joint Cybersecurity Advisory from CISA, FBI and NSA: Russian State-Sponsored Cyber Threats to U.S. Critical Infrastructure and  CISA Insights Bulletin Urges U.S. Preparation for Data Wiping Attacks.

OODA is here to help.  OODA members can contact us by replying to any of our emails or using this form .

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About the Author

Daniel Pereira

Daniel Pereira is research director at OODA. He is a foresight strategist, creative technologist, and an information communication technology (ICT) and digital media researcher with 20+ years of experience directing public/private partnerships and strategic innovation initiatives.