Water Shortages Pose Risk to Semiconductor Firms as Chip Technology Advances

Water Shortages Pose Risk to Semiconductor Firms as Chip Technology Advances

Semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC) are facing a growing risk of water shortages as chip processing technology advances, according to a report by S&P Global Ratings. The semiconductor industry is heavily reliant on water for cooling machinery and ensuring the cleanliness of wafer sheets during the manufacturing process. The more advanced the semiconductor, the more water is consumed, as ultrapure water is used to rinse wafers between each process step.

TSMC, the world’s largest contract chipmaker, experienced a significant increase in water consumption per unit after advancing to 16-nanometer process nodes in 2015. This spike in water usage was primarily attributed to the migration to advanced nodes that require more fabrication processes. As the leader in advanced chip manufacturing, any potential water-related disruptions to TSMC’s operations could have a ripple effect on the global tech supply chain.

Despite the challenges posed by water shortages, TSMC’s dominance in the chipmaking industry allows the company to leverage its position to lock in end demand and compensate for lower unit sales with price increases. S&P Global Ratings noted that TSMC’s ability to maintain its technology leadership would help mitigate the impact of output volatility on its business profile and profitability. By focusing on producing more advanced chips over lower-margin mature chips during periods of limited water supply, TSMC could potentially enhance its earnings.

The semiconductor industry’s water consumption is projected to increase by a mid- to high-single-digit percentage each year, driven by capacity expansion and the demands of advancing process technology. In fact, the world’s chipmakers currently consume as much water as the city of Hong Kong, which has a population of 7.5 million. As such, water security is becoming an increasingly important factor in evaluating semiconductor firms’ credit profiles. Mishandling of water resources could lead to operational disruptions, financial performance impacts, and potential strain on customer relationships.

As semiconductor firms continue to push the boundaries of chip technology, they must also address the challenges of water scarcity and sustainable resource management. Tackling water consumption issues through innovative solutions and strategic planning will be crucial for the long-term viability of the semiconductor industry and its key players like TSMC. By proactively addressing water risks, semiconductor firms can protect their operations, financial performance, and reputations in an increasingly water-stressed world.

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