Taiwan drought threatens water supply to major semiconductor fabs

By Robert Scammell

Taiwan is suffering its worst drought in 56 years, and this risks putting more pressure on the already squeezed world semiconductor supply. The world’s largest chipmakers face water rationing if there is no rainfall by the end of the month.

The East Asian island is normally one of the rainiest places in the world but last year no typhoon hit the island and there has been no significant rainfall across Taiwan in 360 days, causing reservoirs to run dangerously low.

The Taiwan government said on Wednesday that unless there was sufficient rainfall by 1 June that it would raise the drought alert level to its highest. This would require companies based in the chipmaking hubs of Hsinchu and Taichung to cut water consumption by 17%.

Taiwan Semiconductor Manufacturing (TSMC) and United Microelectonics have fabrication plants based in both these cities. Chipmaking requires large volumes of ultra-pure water throughout the manufacturing process.

TSMC uses 156,000 tons of water per day across all its operations, according to its latest available sustainability report from 2019.

The two water reservoirs supplying the science parks where the chipmakers are based have reserve rates of only 11% and 6% as of Wednesday.

Verdict asked TSMC whether it anticipates a hit to chip production because of the drought but did not receive a reply at the time of publication. In February TSMC and other Taiwanese chipmakers purchased water by the truckload to keep production running.

The drought has also caused phased blackouts in Taiwan because there is insufficient water for hydropower plants to meet electricity demands.

The water shortage threatens to choke supply in the country responsible for the majority of the world’s chip production. Most chips are based on the designs of companies such as Infineon or Arm but physically manufactured at foundries owned by other companies. More than 20% of the world’s microchips are manufactured in Taiwan.

Taiwan drought: The latest threat to chip supply

A perfect storm of Covid-19, severe weather, factory fires and soaring demand for silicon has resulted in an unprecedented shortage affecting multiple sectors.

The automotive sector has been hit hardest by the shortage, with all major automakers forced to pause production at some stage this year.

This week Toyota Motor announced it will cut production at three factory lines in Japan next month due to supply chain issues relating to the semiconductor shortage. The automaker said it would suspend production at its Iwate 1 production line, which makes the CHR, for eight days in June due to the shortages while the Iwate 2 line will be shut for five days affecting production of Yaris and Yaris Cross.

The global shortage is expected to cost carmakers $110bn in lost revenue in 2021, according to market analysts. Ford said it would take a $2.5bn hit this year.

Other sectors including consumer electronics have been stung by the shortage, with Apple and Samsung warning they expect to take a sales hit this quarter.

The crisis has sparked a wave of investments in new chipmaking facilities to meet the surge in demand.

On Tuesday US lawmakers unveiled bipartisan legislation to approve a $52bn investment for boosting chip production and research over the next five years.

“American manufacturing has suffered rather dramatically from a chip shortage,” said US Senate Democratic Leader Chuck Schumer. “We simply cannot rely on foreign processors for chips. This amendment will make sure that we don’t have to.”

President Joe Biden has previously called for a $50bn investment in chip production and research on US soil.

Despite tens of billions earmarked for increasing chip supply there is an industry consensus that the shortage will continue into 2022.

Verdict analysis of recently published government figures showed that UK-based carmakers forced to halt or reduce production in recent months have been placing workers on Covid-19 furlough and claiming their wages from the Coronavirus Job Retention Scheme, raising the question of whether their struggles were directly attributable to the pandemic or due to the semiconductor shortage.