Ukraine: Can Apple solve this new supply chain challenge?

Russia’s invasion of Ukraine this week will likely mean an increasing list of economic sanctions that affect everyone, including the technology supply chain that depends on Ukraine for some critical raw materials used in chip manufacturing.

Can Apple solve the supply chain challenge?

My heart goes out to everyone suffering the ravages of any war, and like everyone this week we look to the people of Ukraine. Poor people tend to suffer what they must, and recent history shows enduring victory seldom emerges solely from the barrel of a gun. So, spare a thought to Kyiv-based tech developers in Ukraine, such as those I spoke to so recently from MacPaw and Setapp.

You can read a statement from MacPaw here. Apple has also said it will support local humanitarian efforts.

But, it’s not just development (and also wheat) that comes from Ukraine; the nation is also rich in hard-to-find raw materials used in silicon chips and advanced sensors. This includes the neon gas used by chip-making lasers, palladium, and around 90% of US semiconductor-grade neon. Citing US-based advisory firm, Techcet, Reuters is warning that if the conflict escalates, some of the world’s biggest chipmakers may be impacted. Intel, for example, gets half its neon from Eastern Europe.

Intel is unlikely to be the only supplier affected.

Can Apple be immune?

It’s not just about core processor production. Even if the bigger tech firms make it through, what will the impact be of any raw materials shortage be on the supply of those hard-to-find things Apple CEO Tim Cook calls, “legacy nodes?”

Coming so soon after a pandemic-driven shortage in chip supplies, a shortage compounded by huge growth in demand for processors as the internet climbs inside everything, this must be a headache. (And don’t neglect the recent loss of a huge quantity of global SSD supply).

These shortages have real impact. Apple, we think, had to divert some components from iPad production to use in iPhones as part of its response to silicon shortages, which we also think may have contributed to weaker-than-wanted iPad sales.

The industry wasn’t blind to the threat. As mentioned, Techcet voiced its warning weeks ago. Many of the larger companies, including Apple partner TSMC, may well have already sought alternative supply. However, with so much production concentrated in one geographical area, the race to source alternatives will likely lead to price rises.

Those hikes will impact a global economy already grappling with the fiscal consequences of the also enduring COVID-19 crisis.

This expanding crisis

The thing is, we’re also experiencing huge demand for technology products. We’re used to chips inside computers, smartphones, tablets, and games consoles. But the computer world we seem engaged in building also puts chips in kettles, crockpots, bread machines, garage doors, and ticketing gates. Cars, AR goggles, light switches, USB cables – all these contraptions also have chips inside.

Last year’s news was automakers being forced to scale back production of new vehicles due to problems sourcing chips. But as governments worldwide also attempt to transition entire populations to electric cars (which also contain chips) by 2030, and attempt to deploy the charging infrastructure to power them, it’s hard not to see the conflict generating a cascade of fresh problems.

Innovations like smart cities and Industry 4.0 aren’t innovative at all without the right silicon to drive them. And yet COP26 saw governments lean heavily on technology solutions to climate change.

Apple has scale, but the impact will be felt

Apple, as we know, has the power of scale on its side. It produces hundreds of millions of devices, which is why when it calls a component supplier, it usually gets great deals and sees its needs prioritized. The one with the money (and the full order book) calls the tune.

This may well help the company secure supply for the devices we know it is currently working on, including the iPhone SE 2022 and AR goggles. It must also hope it is not impacted by neon shortages as it attempts to design new processors. (Though I imagine it’s got the machines for the M2 series of chips already ready to go.)

If TSMC is scrambling to secure alternative supplies of components, then Apple must surely be wishing them luck. It may even have a short list of recommendations to offer TSMC, which currently seeks a business intelligence analyst, “interested in translating geopolitics and economic changes to impact on [the integrated circuit] industry supply chain.”

It may be in Apple’s own interests to help TSMC find a good candidate in that role. Demand for all materials — and for the chips inside devices — is expected to increase by over 37% over the next four years.

Perhaps this is just another busy day in Apple’s Operations team’s Slack #ToDo list. But as well as being a business crisis, what’s taking place in Ukraine (and in every other global conflict zone) is a crisis — and perhaps a failure — of dialog and humanity.

It might, in other words, be a good time to donate some cash to the Red Cross. And, like Cook, hope for the safety of all the ordinary folks who suffer so greatly but have so little agency in conflicts of this kind.

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