Rising tensions in the Middle East are creating new risks for the semiconductor industry, as analysts warn that supply disruptions and higher energy costs could weaken demand for chips tied to the artificial intelligence boom.
Conflict Raises Risks For Chip Supply Chains
The U.S.-Israel war with Iran has highlighted the Middle East’s role in supplying key materials used in semiconductor manufacturing.
Analysts warned that a prolonged conflict in the Middle East could disrupt semiconductor supply chains and weaken demand for chips that support the artificial intelligence boom.
Disruptions to materials such as helium and bromine could affect chip production if the conflict continues, CNBC reported on Tuesday.
Ray Wang, memory analyst at SemiAnalysis, said a longer conflict could interfere with chipmakers’ ability to source critical materials.
Helium is especially important because manufacturers use it to manage heat and support lithography processes during chip production, and there is no viable substitute.
Supply risks could also emerge if transportation routes are affected. More than a quarter of the world’s helium supply could disappear from the market if the Strait of Hormuz were closed for an extended period, according to helium industry consultant Phil Kornbluth.
Rising Energy Costs Could Weigh On AI Chip Demand
At the same time, rising energy prices linked to the conflict could reduce demand for semiconductors used in artificial intelligence infrastructure.
Many of these chips power data centers built by companies such as Microsoft Corp. (NASDAQ:MSFT) and Amazon.com Inc. (NASDAQ:AMZN) to train and run AI models.
Analysts said these data centers consume large amounts of electricity. Jing Jie Yu, equity analyst at Morningstar, said higher oil prices could significantly increase the cost of running AI data centers, which are several times more energy-intensive than traditional facilities.
Higher operating costs could slow AI infrastructure adoption and reduce demand for AI-related chips.
Memory chipmakers Samsung Electronics Co., Ltd. (OTC:SSNLF) and SK Hynix have been especially affected because their products are widely used in AI data centers. Strong demand for memory used in AI systems has driven shortages and sharp price increases in recent months.
However, analysts warned that rising costs and supply chain instability could eventually slow semiconductor demand. Counterpoint Research’s MS Hwang said data center operators may cut capital spending if higher memory prices combine with rising electricity costs.
Morningstar’s Yu said the two companies currently have supply contracts for high-bandwidth memory secured for the year, but a prolonged war could delay AI infrastructure projects and weaken demand for conventional DRAM chips that do not have long-term contracts.
This could lead to lower memory prices and reduced semiconductor revenues.
Chipmakers Monitor Risks And Prepare Mitigation Plans
Chipmakers said they are monitoring the situation and preparing for possible disruptions.
SK Hynix said it has diversified its supply chains and built sufficient helium inventory.
Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) said it does not currently expect significant disruptions but will continue to track developments. Both SK Hynix and Taiwan Semiconductor are key suppliers of Nvidia Corp. (NASDAQ:NVDA).
GlobalFoundries Inc. (NASDAQ:GFS) said it is coordinating with suppliers and partners and has mitigation plans in place.
South Korea’s industry ministry also noted that the country depends on the Middle East for 14 additional supply chain items, including bromine and chip inspection equipment, although some of these materials can also be sourced from domestic or alternative markets.
At the same time, industry officials warned that escalating tensions could slow the expansion of AI data centers in the Middle East, thereby weakening long-term semiconductor demand.
Amazon said drone strikes recently damaged some of its data centers in the United Arab Emirates and Bahrain, raising concerns about the pace of technology infrastructure development in the region.
Photo by Below the Sky via Shutterstock
Recent Comments