Water Shortages Pose Risks for Semiconductor Firms

Water Shortages Pose Risks for Semiconductor Firms

The semiconductor industry, including companies like Taiwan Semiconductor Manufacturing Company, faces potential water shortages as technology progresses. As S&P Global Ratings highlighted in a recent report, semiconductor chips play a crucial role in various consumer devices, ranging from smartphones to televisions. TSMC, one of the leading contract chipmakers globally, produces advanced processors for major companies such as Nvidia and Apple. The manufacturing process of these chips is highly water-intensive, with factories utilizing significant volumes of water daily for cooling equipment and maintaining the cleanliness of wafer sheets.

A critical connection exists between water consumption and chip sophistication within semiconductor fabrication plants. The fabrication facilities utilize ultrapure water, which undergoes extensive purification to achieve exceptional levels of cleanliness, to rinse wafers between manufacturing stages. The implementation of more advanced semiconductor technologies results in additional process steps, leading to increased water usage. Data from S&P Global Ratings revealed that TSMC observed a more than 35% rise in water consumption per unit after transitioning to 16-nanometer process nodes in 2015. As S&P emphasized, this surge primarily stemmed from the shift to advanced nodes necessitating more intricate fabrication processes.

Although the escalating water demands pose operational risks for semiconductor firms, S&P recognized TSMC’s dominant position in advanced chip production. The credit ratings agency acknowledged that the chip giant could leverage its technology leadership to secure market demand and offset potential volume declines through price adjustments. TSMC acts as a primary supplier, responsible for approximately 90% of the world’s advanced chips deployed in applications like artificial intelligence and quantum computing. In addressing water scarcity challenges, TSMC might prioritize the production of high-margin advanced chips over less profitable mature products, thereby enhancing its financial performance.

S&P’s report highlighted a concerning trend in the semiconductor sector, predicting a mid- to high-single-digit annual growth in water usage due to capacity expansions and technological advancements. The cumulative water consumption of global chipmakers currently mirrors that of Hong Kong, a city inhabited by 7.5 million residents. The ability to manage water resources effectively is becoming increasingly critical for semiconductor companies, as mismanagement could disrupt operations, impact financial viability, and jeopardize customer relationships. Hins Li, a credit analyst at S&P Global Ratings, underscored the importance of water security in shaping the credit profiles of semiconductor firms moving forward.

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