TSMC and Semiconductor Firms Face Water Shortages as Advanced Chip Technology Increases

Recently, S&P Global Ratings warned that semiconductor companies, including the Taiwan Semiconductor Manufacturing Company (TSMC), could face significant water shortage risks as technology in chip manufacturing advances. This warning comes as these firms increasingly rely on water-intensive processes to create the advanced chips used in various consumer devices.

Water Consumption and Chip Sophistication

As chip manufacturing technology becomes more sophisticated, the demand for ultrapure water, which is crucial for rinsing wafers between each processing step, increases. S&P's credit analyst, Hins Li, highlighted the direct correlation between water usage and chip sophistication, indicating that the more advanced the semiconductor, the higher the water consumption.

According to data from S&P, TSMC's water consumption per unit surged by over 35% following its transition to the 16-nanometer process nodes in 2015. This spike in water usage was attributed to the migration to more advanced nodes, resulting in a higher number of fabrication processes.

Impact on Global Tech Supply Chain

Given TSMC's significant role as the world's leading contract chipmaker, any potential water-related disruptions to its operations could have ripple effects across the global tech supply chain. S&P emphasized the importance of TSMC's dominance in advanced chip manufacturing, noting that it enables the company to mitigate lower unit sales through price increases and maintain technology leadership.

Strategic Responses and Future Outlook

Amid concerns about water scarcity, TSMC may opt to prioritize the production of advanced chips over lower-margin mature chips, potentially leading to improved earnings. S&P's report projected an annual mid- to high-single-digit percentage increase in water consumption within the semiconductor industry, driven by capacity expansion and evolving process technologies.

Water Security and Climate Change

S&P drew attention to the significance of water security in shaping the credit profiles of semiconductor firms, emphasizing that mismanagement of water resources could disrupt operations, weaken financial performance, and impact customer relationships. Additionally, the report highlighted the challenges posed by climate change, including extreme weather events, droughts, and precipitation volatility, which could further complicate production stability for chipmakers.