White House warns for chipmakers to diversify supplies amid tensions with Russia

• The National Security Council has urged chipmakers to find alternative sources

• Many raw materials for chips are obtained from Russia and Ukraine 

Russia’s potential response to the U.S. export curb threats has prompted the White House to issue a warning to the semiconductor chip industry to diversify its supply chain in case Russia blocks access to key materials.

Reuters reported that the White House's National Security Council has urged members of the chip industry to find alternative sources, after learning about their exposure to Russian and Ukrainian chipmaking materials.

Export curbs by the US

The Biden administration has made no effort to mellow its plans for Russia in case the latter invades the US. Last week a top White House official had announced that the US may curb exports to Russia, and will focus on targeting industrial sectors.

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The Foreign Direct Product Rule, as it is called, may be adapted to halt Russia’s ability to import smartphones, key aircraft, and automobile components.

The same rule was used to restrict Chinese telecom equipment maker Huawei’s access to shipping items that are the direct product of US technology or software, from US and non-US companies. Such shipments can only be made with a US license.

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Companies such as Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), that use US chipmaking equipment, are required to obtain US licenses before supplying Huawei and licenses for sophisticated chips are denied.

The scope of potential curbs on imports to Russia has been described as disrupting Russia’s economy more broadly, hitting industrial sectors such as artificial intelligence, maritime, defense, civil aviation, and consumer technologies.

Impact on US chipmakers

Many materials used to design high-quality semiconductor chips are obtained from Russia and Ukraine. These include C4F6, Palladium, Helium, Neon, and Scandium.

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Neon is critical for the lasers used to make chips. It is a by-product of Russian steel manufacturing and is then purified in Ukraine, reported Reuters. Palladium is used in sensors and memory, among other applications.

Chipmakers are reviewing their supply chains to look into the supply of these raw materials. They believe that conflict in Ukraine would drive up the prices and constrict the market.

Reuters reported that prices of Neon rose by 600% after Russia annexed the Crimean peninsula from Ukraine in 2014.

In a time when global chip supplies are tight and the demand is steadily rising, looking for other sources of key products and diversifying supplies presents itself as a viable option.

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Inputs from Reuters