The US ban on sales of chips and other electronics technology to Russia will impact global supply chains that are already stretched thin, analysts say.

After Russia’s invasion of Ukraine in February, global tech companies from Apple to Taiwan Semiconductor Manufacturing Co. (TSMC) shut off supplies to Russia of everything from iPhones to chips.

Russia and Ukraine account for about 1 percent of global spending on information and communications technology (ICT), according to market watcher IDC. The impact of the war in Ukraine on trade, supply chains, capital flows and energy prices will affect the global economy on a broader scale with negative consequences for the ICT market, according to IDC.

One unknown variable is China. While Chinese tech companies haven’t joined the US restrictions on sales to Russia, they will have difficulty plugging any supply gaps caused by the sanctions, according to Robert Maire, president of Semiconductor Advisors.

“Chinese chipmakers have limited capacity and clearly can’t make up all the process technologies that Russia was getting elsewhere,” Maire said in emailed comments to EE Times. “Right now, given that everyone is short of capacity, adding to that shortage is of little benefit to the Chinese.”

Chinese chipmakers like Semiconductor Manufacturing International Corp. (SMIC) are busy feeding demand at home.

That said, the Biden administration anticipates that Russia will be compelled to find alternative sources of technology. There are few of those, and China, which recently has been forging closer ties with Russia, is prominent among them. On Tuesday, US Secretary of Commerce Gina Raimondo publicly warned Chinese companies against supplying Russia. Raimondo told The New York Times that Russia “is certainly going to be courting other countries to do an end run around our sanctions and export controls.” Asked specifically about SMIC, Raimondo responded, “we could essentially shut SMIC down because we prevent them from using our equipment and our software.”

Electronics manufacturers in China continue to get the chip supplies they need, but at a higher price, according to a fund manager with an Asian sovereign wealth fund who requested anonymity. Prices in China for power management chips increased by 30 times after the US placed Chinese companies including Huawei on its Entity List more than a year ago, he said.

The US stopped Huawei’s production of some volume products like 5G smartphones, according to the fund manager, who invests in global tech companies. Even so, Huawei continues to pump out 75 percent of its pre-ban output, he said.

Russia has certain critical areas where the nation will be hurt by the more recent US ban, including 5G infrastructure and military/intelligence-related applications, Maire said. Russia needs chips for missiles, satellites and communications networks, he added.

Russia has up to now depended on foreign foundries such as TSMC for chips.

TSMC and other chip companies like Samsung are critical when it comes to effectively implementing sanctions or export-control restrictions, according to Matthew Bey, an analyst with geopolitical intelligence consultant Stratfor. Russia can buy chips on grey markets in Asia, but those parts are not designed for applications that Russia needs, according to Stratfor. Even if Russia is able to get a Chinese foundry to manufacture a less advanced chip, it will still take months to tape out, according to Bey.

The US has successfully implemented widespread prohibitions on sales of technology to Russia in just a few weeks, he said.

“U.S. export control laws are robust and extra-territorial in nature,” Bey said. “Given TSMC’s reliance on U.S.-developed technology to build chips, it cannot afford to flout U.S. export control laws.”

So far, the ban has been a positive for the chip industry because of price inflation and the need among electronics manufacturers maintain higher inventory levels for parts, which got a large boost from Covid-related supply chain disruptions and new applications, according to the fund manager.

“But at some point, these inefficiencies hurt end demand,” he said. It’s not good news for middle- and low-income populations worldwide, he added. “Economic woes also create political instability worldwide.”

The evolving geopolitical scenario will affect global ICT demand in the coming months and years, said Andrea Siviero, an associate research director with IDC. The research firm found that more than half of the businesses responding to a recent survey are reassessing their tech spending plans for 2022, with 10 percent expecting strong adjustments to their ICT investment plans.

The US ban will likely take a year or more to have an impact on Russia as it uses up supplies of parts, Maire said. That impact will grow as the Russian military exhausts missiles and systems in Ukraine and is unable to find replacements or the ability to manufacture replacements due to chip shortages, he added.

By: DocMemory
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