South Korea is very worried! Middle East conflict disrupts the chip industry, and the supply of key semiconductor elements faces an "interruption" risk

As the Middle East conflict continues, markets are beginning to worry about potential spillover effects on the semiconductor industry and chip manufacturers.

In the industry’s view, ongoing turmoil in the Middle East could impact the supply channels for critical chip manufacturing materials. Meanwhile, rising energy costs may suppress the construction of AI data centers and demand for chips. Analysts believe that South Korean chipmakers like Samsung and SK Hynix could be particularly vulnerable.

Based on this assessment, semiconductor stocks experienced a sell-off before U.S. President Trump stated on the 9th that the conflict would “end soon.” The impact was especially severe on memory chip manufacturers SK Hynix and Samsung, whose combined market value has evaporated by over $200 billion since the conflict began. The VanEck Semiconductor ETF has also fallen about 3% since the outbreak.

Ray Wang, storage analyst at SemiAnalysis, said, “The Middle East conflict highlights the region’s position in the global semiconductor supply chain. Currently, the impact seems limited, but if the conflict persists, it could eventually lead to supply disruptions, disrupting chip manufacturers’ operations—especially in the procurement of materials like helium and bromine. Global chip makers may need to adjust their sourcing strategies for key materials.”

Potential Impact on Chip Supply Chains

According to data from the U.S. Geological Survey (USGS), Qatar accounts for more than one-third of the world’s helium production. Helium is used in chip manufacturing for cooling and in photolithography, a key process for printing complex chip circuits. Currently, there are no viable substitutes. In 2023, the Semiconductor Industry Association warned that if helium supplies are interrupted, “the global semiconductor manufacturing industry could be affected.”

Not only helium production but also the transportation of helium from the Middle East could become increasingly difficult, especially with the Strait of Hormuz effectively closed. Industry consultancy Kornbluth Helium Consulting’s President, Phil Kornbluth, said, “If the Strait of Hormuz remains closed for an extended period, over 25% of the world’s helium supply could be stranded. I find it hard to imagine what would happen if global helium production stalls for at least two to three months, let alone the impact on transportation and supply chains. It could take 4 to 6 months to recover once disrupted.”

Bromine is another critical element, essential in semiconductor manufacturing processes. According to USGS, about two-thirds of the world’s bromine production comes from Israel and Jordan.

Peter Hanbury, a partner at Bain & Company specializing in technology, said, “The Middle East conflict poses risks to some key materials in the semiconductor and chip manufacturing industries. Qatar is one of the world’s largest exporters of high-purity helium. Helium and bromine are the main elements we are concerned about.”

Beyond disruptions to key element supplies, market participants also worry that rising energy costs caused by the conflict could impact the semiconductor industry. A significant portion of demand for semiconductors—from NVIDIA’s graphics processors to memory chips from Samsung and SK Hynix—comes from AI data center construction. These energy-intensive data centers are used to train and run large AI models, built by major U.S. tech companies like Microsoft and Amazon.

Since the conflict erupted, international oil prices have experienced multiple “roller coaster” swings. In the latest fluctuation, Brent crude futures briefly fell back to around $85 per barrel but surged back above $100 even after the International Energy Agency (IEA) released oil reserves.

Jing Jie Yu, stock analyst at Morningstar, said, “AI data centers consume about 3 to 5 times more electricity than regular data centers, and the U.S.’s heavy reliance on oil means that costs for AI data centers could rise significantly with soaring oil prices. This could substantially increase the total cost of ownership (TCO) for large-scale data centers, threatening the proliferation of AI infrastructure. If the conflict persists, demand for AI memory chips could also decline.”

How Korean Chipmakers Are Responding

The market is particularly focused on how South Korean chipmakers will respond. Samsung and SK Hynix are the world’s two largest memory chip producers. These chips are key components in smartphones, laptops, and other consumer electronics. Recently, they have also become indispensable in AI data centers.

On the 9th, industry sources cited by media reported that the supply landscape for high-bandwidth memory (HBM) for NVIDIA’s next-generation AI accelerator Vera Rubin is taking shape, with both Samsung Electronics and SK Hynix named as HBM4 component suppliers. Since the production cycle from DRAM wafer to final packaging for HBM4 exceeds six months, Samsung and SK Hynix are expected to begin mass production as early as this month.

For some time, the enormous demand driven by AI has led large-scale data center operators to invest hundreds of billions of dollars in infrastructure, with nearly all global memory chip supply dedicated to these projects. This has caused a shortage of memory chips and unprecedented price increases, boosting profits for Samsung and SK Hynix and driving their stock prices sharply higher over the past nine months. However, rising costs and weakening demand are now raising investor concerns.

Currently, with no signs of easing in the Middle East conflict, MS Hwang, research director at Counterpoint Research, said, “Power accounts for about half of data center operating costs, and roughly half of that power is used for memory supply. If supply chain instability causes memory prices to continue rising, and energy-driven operating costs also increase, customers may cut back on AI capital expenditure and semiconductor demand. Last week, a South Korean lawmaker warned that the ongoing conflict could hinder the country’s access to key materials like helium from the Middle East, and prolonged conflict could push energy prices higher.”

Yu added that both Samsung and SK Hynix have signed annual HBM supply contracts and currently hold enough reserves to maintain production. However, prolonged conflict could severely delay AI infrastructure development and put pressure on traditional DRAM products not covered by these long-term contracts. This could lead to weaker DRAM prices and lower-than-expected revenues for related companies.

“From a utility perspective, the longer the conflict lasts, the higher the overall production costs for memory chips. Rising costs, combined with the conflict, could also lead to shortages of critical stable materials and lower yields. If DRAM prices weaken as well, it could put significant pressure on Samsung and SK Hynix’s high valuations, which are largely based on market expectations of high profit margins for these companies,” Yu said.

(Article source: First Financial)