Tech download: Iran problem of the sector

Uncertainty reigns over global supply chains and Middle East-based projects as the Iran war approaches the two-week mark.

In technology, two sectors critical to the artificial intelligence boom have come to the fore: chipmakers and hyperscalers with massive AI buildout projects in neighboring Iran.

A protracted conflict could affect the semiconductor sector’s access to key materials like helium and bromine, my colleagues Arjun Kharpal and Dylan Butts wrote.

Helium is used to transfer heat when chips are made and is critical to the lithography process.

According to the US Geological Survey, Qatar produces one-third of the world’s helium supply. In 2023, the Semiconductor Industry Association warned of “shocks” to the chip sector if helium supply is disrupted.

Phil Kornbluth, president of Kornbluth Helium Consulting, told CNBC that more than 25% of the world’s helium supply would be taken out of the market by an extended shutdown in the Strait of Hormuz.

Bromine – used in etching processes to cut circuit patterns into wafers – is another ingredient that draws attention. About two-thirds of the world’s bromine production comes from Israel and Jordan, according to the US Geological Survey.

The current impact on the supply chain of these factors “appears to be limited,” Ray Wang, a memory analyst at SemiAnalysis, told CNBC, adding that “a prolonged conflict could disrupt chipmakers’ production operations.”

Experts told me that the impact of the Iran war on neighboring countries in the Middle East raises questions about the future of data center and digital infrastructure construction in the region.

A concerted effort by governments in the Middle East to attract international investment — and to move away from China to appease the US administration — has paid off. Like major tech companies Nvidia, Oracle, Microsoft And OpenAI has recently announced all its projects in this area.

Iran’s wave of retaliatory attacks targeted its neighbor’s data centers and disrupted banking, payments, industry and consumer services in the opening week of the conflict.

Greater scrutiny of security in the Middle East, if the conflict continues to affect the wider region, “will see a shift in the next wave of capability structures,” said Patrick J. Murphy told me.

“If geopolitical risk continues to rise in the Gulf, companies may accelerate projects in places like Northern Europe, India or Southeast Asia, where power supplies, regulatory frameworks and security conditions are more predictable.”

While companies aren’t racing to extract assets from the region — and, in the event of a minor conflict, may continue to deploy at their current pace — scenario planning weighs on investment committees and boards.

Instead of exiting the region, companies can take steps to curb their investments by slowing new capital deployments or pausing planned partnerships, Tess DeBlanc-Knowles, senior director of the Atlantic Council think tank, told me.

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