The ongoing conflict involving the United States, Israel and Iran has triggered volatility across global semiconductor stocks. This has raised concerns about how tensions in the Middle East could disrupt a supply chain that is the backbone of the artificial intelligence (AI)-driven chip boom. A report cited analysts who said the region plays a key role in supplying several materials used in semiconductor manufacturing, and that any prolonged conflict could affect access to these inputs.According to a CNBC report, the geopolitical uncertainty has already weighed on major memory chipmakers. Shares of Korean chipmakers Samsung and SK Hynix have reportedly come under pressure, wiping off more than $200 billion from their combined market value since the start of the war, even as both stocks rebounded this week. The VanEck Semiconductor ETF has also slipped around 3% since the conflict began, reflecting broader concerns in the chip sector.The conflict has drawn attention to the Middle East’s role in supplying materials used in semiconductor fabrication. Ray Wang, memory analyst at SemiAnalysis, told CNBC, “A prolonged regional conflict could potentially disrupt chipmakers’ manufacturing operations regarding sourcing materials like Helium and Bromine. For now, the impact appears to be limited. However, a prolonged conflict could eventually lead to disruptions or require adjustments in the sourcing of key materials.”
How the Middle East is so critical for the semiconductor industry
Last week, a South Korean lawmaker warned that the US-Iran war could affect access to key Middle Eastern materials, including helium, according to a Reuters report. The lawmaker also cautioned that a prolonged conflict could push energy prices higher. This has brought renewed attention to the role several Middle Eastern countries play in the global semiconductor supply chain.Qatar accounts for more than one-third of the world’s helium supply, according to the US Geological Survey. Helium is used during semiconductor manufacturing to transfer heat away from equipment. It is also used in processes such as lithography, which is a technique that prints intricate circuitry on a chip. There is currently no viable substitute for helium in these processes.In 2023, the Semiconductor Industry Association warned that if helium supply were disrupted, “there would likely be shocks to the global semiconductor manufacturing industry.”Production is not the only concern. Transporting helium out of the Middle East could become more difficult if tensions affect shipping routes, particularly through the Strait of Hormuz.An extended shutdown of the Strait of Hormuz would remove more than 25% of the world’s helium supply from the market, Phil Kornbluth, president of Kornbluth Helium Consulting, told CNBC.Qatar’s state-owned QatarEnergy produces helium as a byproduct of liquefied natural gas (LNG) production. An Iranian drone attack last week hit the company’s Ras Laffan Industrial City, forcing the site to go offline.Phil Kornbluth said it “is getting hard to imagine” that the world is not facing a “minimum” two-to-three-month shutdown of helium production and a four-to-six-month period before the helium supply chain “returns to normal.”Bromine is another element under focus because it is used in semiconductor manufacturing. Around two-thirds of the world’s bromine production comes from Israel and Jordan, according to the U.S. Geological Survey.“There is a modest risk to critical materials. Helium is the main one we are watching. Qatar is one of the largest sources of Helium. Canada and the United States are also large suppliers,” Peter Hanbury, partner in Bain & Company’s Technology practice, told CNBC.
How rising energy costs can affect the semiconductor industry
The report claims that rising energy costs could also affect the semiconductor industry. Much of the demand for semiconductors ranges from Nvidia’s graphics processing units to memory chips produced by Samsung and SK Hynix. All these are linked to data centres that train and run large artificial intelligence models.These energy-intensive data centres are being built by major US technology companies, including Microsoft and Amazon, which are purchasing large volumes of semiconductors.The conflict pushed Brent crude above $100 before some of those gains eased this week. The “high dependency” of the US on crude oil “indicates significantly higher costs for AI datacenters,” which are roughly three to five times “more power-hungry than regular data centres,” Jing Jie Yu, equity analyst at Morningstar, told CNBC.“This could significantly increase the total cost of ownership (TCO) for hyperscalers, thereby posing a threat towards AI infrastructure adoption. An extended war would lead to some pullback in AI memory chip demand,” Yu added.
Why Korean memory chipmakers can be one of the biggest ‘victims’ of the US-Iran war
Samsung and SK Hynix are the two largest producers of memory chips. These components are used in consumer electronics such as smartphones and laptops, and in recent years, they have also become important semiconductors in data centres for AI. High Bandwidth Memory (HBM) is a type of dynamic random access memory, or DRAM, where chips are stacked vertically. HBM is used in Nvidia-built systems. Other types of memory are also installed in data centres.Demand linked to AI infrastructure has contributed to higher profits at Samsung and SK Hynix and a rally in their share prices over the past nine months. However, concerns about rising costs and the possibility of weaker demand are affecting investor sentiment.MS Hwang, research director at Counterpoint Research, said electricity accounts for about half of a data centre’s operating expenses and roughly half of that is used to power memory.“Therefore, if memory prices continue to rise due to supply chain instability while energy-driven operating costs also climb, customers operating data centres may reduce their capital spending and semiconductor demand,” Hwang told CNBC.Jing Jie Yu, equity analyst at Morningstar, noted that both Samsung and SK Hynix have supply contracts for HBM locked in for the year and that “both players have sufficient reserves to sustain production for the time being.”However, Yu said “an extended war could materially delay AI infrastructure builds” and weigh on more “conventional DRAM” products that are not covered by longer-term contracts. That could lead to weaker DRAM pricing and lower-than-expected revenues.“An extended war also drives up the overall cost of production, from a utilities angle as well as lower yields due to the lack of key stabilising materials as mentioned above. Coupled with weaker DRAM pricing, we think this potentially weighs on the high margins that the market is currently pricing into valuations,” Yu said.Demand linked to AI infrastructure and large investments by hyperscalers in data centre construction has directed much of the global supply of memory chips toward these projects. This has contributed to tighter supply and rising prices for these chips.
