Why the Cloud and Data Center Industry Should Worry About a Potential War in Ukraine

Semiconductor manufacturing is incredibly difficult and costly. From pushing the laws of physics to having to rely on rare and difficult-to-source substances, the job of Samsung, Intel, Texas Instruments, and GlobalFoundries has never been harder. Unfortunately, the prospect of a war in Ukraine is very bad news for the semiconductor industry, and it may significantly exacerbate the ongoing semiconductor shortage.

Ukraine and the semiconductor industry

Ukrainian companies Iceblick, Ingas, and Cryoin manufacture over 70% of the world’s neon gas supply. Neon is a gaseous chemical element used in semiconductor lithography, specifically deep-ultraviolet photolithography (DUV). This is the generation before the current extreme ultraviolet lithography (EUV), which was used to reach the 7nm transistor size and below. The DUV process is used for transistors from 14nm to 248nm, including Intel’s Skylake and Cascade Lake processors. Even the current generation of Ice Lake CPUs based on Intel’s 10nm process relies on DUV.

Why is neon important in lithography? Excimer lasers use gases like krypton fluoride (KrF) and argon fluoride (ArF) to generate light, and those gases are regularly changed out during use. However, a charge of excimer laser gas is actually about 98% neon, making this carrier gas essential to the laser’s operation.

A double whammy for the data center industry

The last time the semiconductor industry experienced a severe neon shortage was in 2015/2016. That shortage was triggered by the Russian invasion of Ukraine’s Crimean region in 2014. Neon gas prices increased by 10x at the time of the shortage.

This situation is a double whammy for the cloud and data center industry, which has faced a semiconductor shortage ever since the global economy started recovering from the COVID-19 pandemic. As discussed in Omdia’s latest Data Center Server Tracker, processors from power management ICs to field-programmable gate arrays (FPGAs) to switch application-specific ICs (ASICs) are all experiencing long lead times. We anticipate supply will continuously improve through the second half of 2022 and the beginning of 2023.

Bottom line

While Omdia cannot forecast how the situation in Ukraine will evolve, one thing is clear: the repercussions could be wide-reaching and will most certainly affect the cloud and data center industry.

Further reading

Data Center Server Tracker – 3Q21 Analysis (December 2021)

Meet the Omdia anlyst team at the Omdia Reserch Forum in March.