Cost Instability Grips 'AI Rally'... Iran War Identified as the Cause

Supply Chain Disruptions and Profitability Concerns

The Iran war has emerged as a major variable among hardware companies supporting the artificial intelligence (AI) boom.

On May 19 (local time), CNBC, a U.S. economic media outlet, reported that the Iran war has become a primary factor causing supply chain disruptions and putting pressure on profitability.

Reuters Yonhap News

TSMC, the world's largest foundry company whose clients include NVIDIA, stated that the situation in the Middle East could impact its profitability, noting that the prices of certain chemicals and gases may rise. Foxconn, the world’s largest electronics contract manufacturer, also identified the Middle East crisis as one of the main challenges this year. Infineon, a semiconductor company, explained that the aftermath of the war would lead to increased costs for precious metals, energy, and transportation.

Helium, produced as a byproduct of natural gas production, is essential for semiconductor manufacturing. Currently, Qatar, the world's second largest supplier, is facing export disruptions due to Iran's attacks. Other raw materials crucial to semiconductor production processes, such as bromine and aluminum, have also been affected by the war, impacting their supply.

VAT Group, which supplies parts to semiconductor manufacturers, stated that it has experienced supply chain disruptions due to the war and had to change the shipping routes for products delivered to customers. While it does not expect a significant impact on its annual performance outlook for this year, it reported a blow to first-quarter sales, amounting to 20 million to 25 million Swiss francs (approximately 38.4 billion to 48 billion won).

Francisco Jeronimo, an analyst at IDC, warned that the situation for these companies could worsen, stating, "Negative impacts are expected to continue throughout this year. Even if a ceasefire is possible, the supply-side damage will not improve in the short term."

Sebastien Naji, an analyst at William Blair, pointed out that the most serious issue currently facing manufacturers and semiconductor plants is the rise in energy costs. He explained that the longer the Middle East conflict continues, the greater the secondary and tertiary impacts will be on component costs, supplier margins, and the overall economics of AI data centers. He added, "If the (Strait of Hormuz) blockade continues through the summer, there is a strong possibility that future risks and impacts will have to be reassessed."

Advantest, a Japanese semiconductor testing equipment company, noted in its recent earnings announcement that "the heightened tensions in the Middle East have made the business environment surrounding our company still unpredictable, due to concerns that it could lead to a global economic slowdown." While the direct impact on current earnings is limited, the company noted that some cost increases, such as in logistics, have already begun to appear, and that supply chain shortages could also arise.

Despite the recent AI boom, some abnormal trends are expected to emerge. Michael Field, Chief Equity Strategist at Morningstar, mentioned the recent stock price surge among semiconductor companies, saying, "So far, all disruptions (resulting from the Iran war) have been completely overshadowed by the rising investor confidence in AI." The Philadelphia Semiconductor Index has risen by about 41% over the past three months.

Analyst Jeronimo commented, "Companies that hold safety stock, diversify their suppliers, and possess pricing power for production capacity can shield themselves from the impact of the Iran war." However, he added, "All other companies will face increasing cost pressures."

This content was produced with the assistance of AI translation services.