Here's why prolonged Russia-Ukraine war would be really bad for us, say chip designers
Our R&D is in an occupied nation, Corsair also warns investors
While the top chip and hardware makers may have moved to minimize the impact of Russia's war against Ukraine on their operations, smaller companies are mapping out their worse-case scenarios arising from a prolonged conflict.
These suppliers fear they will be rocked by shortages of raw materials, further supply-chain challenges, and potentially worsening China-Taiwan relations.
Corsair Gaming, which sells PC gaming hardware and systems, has said a dragged-out war could result in GPU shortages lasting longer than expected as production of the chips involves highly purified neon gas and palladium, of which Ukraine and Russia are the world’s leading exporters.
"In addition," the company continued in a filing this week with America's securities watchdog, "recent political and military events in Ukraine, poor relations between the US and Russia, and sanctions by the US and the European Union against Russia could have an adverse impact on our research and development efforts as we maintain significant research and development operations in Ukraine."
Though these 10-K filings by companies are always filled with doom and gloom, so that investors are fully aware of the worst-possible potential risks, Corsair's specific points stand.
Nvidia and AMD declined to comment on how the conflict would impact their graphics processor production and supplies. Instead, they directed The Register to comments made by the Semiconductor Industry Association, which has noted Russia "is not a significant direct consumer of semiconductors, accounting for less than 0.1 per cent of global chip purchases."
The industry body also said, regarding neon and palladium, "we do not believe there are immediate supply disruption risks related to Russia and Ukraine," keyword here for some vendors, we suspect, is immediate.
An Intel spokesman told The Register it does not "anticipate any significant impact" from the war, adding: "Our strategy of having a diverse, global supply chain minimizes our risk for potential local interruptions."
And in a public statement just earlier, the x86 goliath said it "condemns the invasion of Ukraine by Russia," adding: "We have suspended all shipments to customers in both Russia and Belarus."
Time for some changes
America's ban on exports to Russia, as punishment for invading Ukraine, is mostly uncharted territory for the chip industry. A company is an easy target for sanctions as the US showed with Huawei, while blocking an entire country is harder though not impossible, said Andrew Feldman, CEO of AI chip biz Cerebras Systems.
"The US has been successful in banning goods and services from flowing to Iran and to North Korea in the past. I think the ban on chips alone is indeed unprecedented in the three decades I have been in the industry," Feldman said.
Compliance is always easiest for large companies, such as AMD, Intel, and TSMC, which have stopped shipments to Russia, though smaller companies with fewer resources will feel the squeeze.
"One of the thing large companies are good at is lawyering. This should not be challenging for them. Many of them have offices in Russia and already had significant resource allocation to compliance," Feldman said.
Government regulation is typically harder on small companies; domestic control of the chip supply is a national security imperative for the US.
"For any developed economy massive reduction in the supply of chips will do economic damage. How much damage and over what timeframe is unclear … but that it will do damage is certain," Feldman said.
SiTime, which designs programmable oscillator chips for critical timing in 5G networks, has also warned investors that a prolonged conflict, more sanctions, or worsening relations between the US and Russia could disrupt its business and increase costs. It also assessed the risk of a worsening geopolitical scenario as a result of the invasion impacting business.
"If political tensions between China and Taiwan were to increase further, it could disrupt our business and adversely affect our financial condition and results of operations given that we rely primarily on TSMC in Taiwan for our analog circuits," SiTime said in a 10-K filed shortly after Russia invaded Ukraine a week ago.
Signal processor design house Ceva also raised the possibility of heightened risk of relations between US and China worsening after Russia invaded Ukraine. US-China relations have been rocky since 2018, and a number of factors may "exacerbate these tensions in the future."
"The recent movement of Russian military units into provinces in Eastern Ukraine has resulted in increased sanctions against Russia, and could also increase China/Taiwan political tensions and US/China trade and other relations," Ceva said in its filing this week.
Ceva noted that the trade tensions with China haven't impacted its revenue so far, but it could not predict the adverse effects of geopolitics on its results.
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Wireless camera maker Arlo said the stricter sanctions "could have a material adverse effect on our product development timelines."
"We are actively monitoring the security of our employees and contractors in Belarus and the stability of our infrastructure, including communications and internet availability. To date we have not experienced any material interruptions in our operations there and we are in the process of transitioning our operations out of Belarus to other locations," Arlo disclosed this week.
Other companies in filings have talked about fluctuating foreign exchange rates due to the worsening geopolitical situation potentially impacting revenue.
Larger companies are more cautious about compliance because they have much more to lose as a result of errors, plus there's less visibility into smaller companies, Dan Hutcheson, vice chair at TechInsights, told The Register.
"You'd be surprised how little the government knows about the semiconductor industry," Hutcheson said, adding "because of the supply chain complexity, it is really easy to bury that stuff even though you have all this digital tracking going on."
Chips can end up in China for packaging, and tracking them becomes difficult, he said. He added that in the Cold War era, if a chip was stolen or illegally shipped to the Soviet Union, it was very visible. The Soviets also cloned IBM mainframes and Intel chips. ®