The impacts of the Ukraine-Russia conflict reverberate beyond the global political and economic landscape and could hit closer to home than you realize
Here are a couple of little-known facts: About half of the world’s neon supply is produced by just two companies based in Ukraine, and 75% of the total global supply goes to the manufacture of semiconductor chips. As of early March 2022, these two companies – Ingas and Cryoin – have halted operations in light of the ongoing political conflict in the Eastern European country.
Already reeling from the chip shortage caused by the coronavirus pandemic, the world could see another potential supply issue if the conflict continues. According to a Reuters exclusive, both Ingas and Cryoin have suspended production, which translates to a combined 25,000 to 35,000 cubic meters of neon in unfulfilled orders just for March. While most major chip manufacturers generally have stocks of neon and therefore could weather a shortage, smaller companies in the semiconductor business might not fare as well. Even larger manufacturers would only have enough neon in reserve for about two months before they run into shortage-related production challenges.
While it’s already evident that this supply deficit could hurt the IT world in general, there’s more to consider beyond what’s on the surface. It’s obvious that if manufacturers cannot produce enough chips, new hardware sales will trend downward. But even those who are not considering a device refresh within their organizations in the near term could feel the pinch.
For example, public cloud customers could be affected in terms of reduced compute power available from their providers. Public clouds like Microsoft Azure and AWS are always on an expansion drive to accommodate the ever-growing demand for cloud services. There’s a new business migrating to the cloud every day. They routinely require new CPUs to supply enough resources to customers going into the cloud and those expanding their computing requirements. If public clouds are suddenly unable to due to a shortage of processors, of which neon is a primary raw material, that’s when resources become scarce.
Remember how everything felt slow during the initial shift to remote work in early 2020? That was caused by the surge in demand for computing resources as a staggering number of organizations started using more cloud services than anticipated. As a case in point, Microsoft Teams usage shot up 400% in a matter of days during that period. The sluggish response could be felt until providers added enough resources back into their infrastructure to cope with the increased demand. The coming months might see a 2020 déjà vu as more and more organizations increase their cloud requirements, essentially fighting for the same available resources.
It’s impossible to tell how long the conflict will persist or what lasting impact it will have on the IT landscape. Still, it would be prudent to secure some kind of insurance policy to guarantee access to enough computing power your organization will require. Within Microsoft Azure, customers can make reservations for virtual machine (VM) resources for a specified period to have a guaranteed allocation in the event of a prolonged neon shortage.
Many businesses in the cloud are on a pay-as-you-go billing plan, obtaining access to compute cycles as and when required. When cloud resources become scarce, however, they might not secure the power they need to conduct business as usual. On the other hand, committing to a one- or three-year reservation gives you the assurance that you have all the cloud resources you need when you need them while also providing cost reduction opportunities. Reservations can net customers up to 41% in cost savings for one-year arrangements and up to 62% for three-year commitments over pay-as-you-go rates.
The question is – should you? It’s insurance to maintain business continuity in the event of a sustained neon shortage through guaranteed computing resources, and it doesn’t cost a thing. It’s quite the opposite, actually. Creating a VM reservation comes with the added benefit of a net reduction in your cloud spending. So, shortage or not, it makes business sense.
If you’d like more information on how you can create reservations for your Azure estate, reach out to one of our cloud architects at cloud@compugen.com.