Iran crisis could disrupt supply of key chipmaking materials, South Korea warns

The U.S.-Israel war with Iran could disrupt supplies of key semiconductor manufacturing materials, a South Korean ruling party lawmaker said on Tuesday, as the conflict in the Middle East entered its sixth day.

South Korea's chip industry, which supplies around two-thirds of the global memory chips, is also concerned that a prolonged conflict in Iran will lead to higher energy costs and prices, Kim Young-bae said after meeting with executives from companies such as Samsung Electronics 005930.KS and trade groups.

"Officials raised a possibility that semiconductor production could be disrupted if some of these key materials cannot be sourced from the Middle East," he said at a briefing with reporters, adding South Korean firms source some key chip-making materials such as helium from the Middle East.

Helium is essential for heat management during semiconductor production and it has no viable alternatives currently. It is only produced in a handful of countries, with Qatar and the U.S. among the leading players in the industry.

The caution comes as chipmakers grapple with severe supply bottlenecks due to surging chip demand from AI data center operators that has tightened supplies to many other industries including smartphones, laptops and automobiles.

South Korean chipmaker SK Hynix 000660.KS said in a statement that it had sufficient helium inventory and did not expect disruption to its procurement.

Samsung declined to comment.

Contract chipmaker GlobalFoundries GFS.O said in a statement it is actively monitoring developments in the Middle East.

"The situation remains fluid, but we are in direct contact with suppliers, customers and partners in the region and have mitigation plans in place."

IMPACT ON DATA CENTERS

South Korea's chip industry also warned the crisis could deal a setback to plans by big tech firms to build AI data centres in the Middle East for the longer term, thus weighing on strong chip demand, Kim said.

Amazon AMZN.O said on Monday some of ​its data centres in the United Arab Emirates and Bahrain were damaged by drone strikes, sparking questions around Big Tech's pace of expansion in the region.

U.S. tech giants like Microsoft MSFT.O and Nvidia NVDA.O have been positioning the UAE as a regional hub for artificial intelligence computing needed to power services such as ChatGPT.

Iran launched a wave of missiles at Israel early on Thursday in retaliation for U.S. and Israeli strikes that killed Supreme Leader Ayatollah Ali Khamenei on Saturday.

-Heejin Kim and Hyunjoo Jin/Reuters