Taiwan looks to secure water supply amid chip growth

The Taiwanese government is implementing strategies to increase water supply over the next four years as the country's semiconductor manufacturers plan to build more water-intensive capacity to meet chip demand.

Taiwan is facing its worst drought in 56 years after no typhoon hit the island in 2020. Reservoir levels in southern and western parts of the country have fallen below 20pc. The government has this month asked major industrial consumers in the western city of Hsinchu, including semiconductor manufacturers, to reduce their water usage by 13pc.

Taiwan's Water Resources Agency said yesterday that through a combination of increasing supply, throttling, scheduling and backup it will add 1.06mn t/d of water supply for the next four years. The strategy will involve managing the river basin, pipeline network, sea water, fresh water and reclaimed water, as well as reservoir dredging. The government has approved emergency plans for several cities to dig wells by the end of the month to provide short-term supply.

The water restrictions come at a time of a global shortage in semiconductor supply, requiring producers to run at full capacity and expand their output.

Several producers, including AXT, Infineon and Samsung, were forced to reduce production following a severe storm in Austin, Texas in February, and a fire took a Renesas plant in Japan off line in March. While the US plants have been returning to full production, the Renesas plant is expected to run at a reduced rate until the end of May.

And over the longer term, water consumption in the semiconductor industry in Taiwan is set to climb as the country's manufacturers respond to a structural rise in global demand.

Governments in Europe had asked Taiwanese producers to work with customers including carmakers to help alleviate the shortage. Vehicle manufacturers around the world have been forced to cut production owing to the lack of semiconductor supply. Semiconductor chips are increasingly used in vehicle sensors, advanced driver-assistance systems and entertainment applications, as well as battery management systems in electric vehicles.

Rapid growth in the use of semiconductors in the automotive industry as well as 5G, Internet of Things and other applications is causing a global shift in the market, prompting chipmakers to scramble to meet demand. The industry had not anticipated the ramp-up in demand for mature process chips favoured for vehicles and companies are adjusting their investment plans, which had focused on building capacity for advanced high-performance chips.

To address the need for increased supply over the long term, Taiwan Semiconductor Manufacturing (TSMC), which alone accounts for more than 50pc of the global chip market, plans to invest $100bn over the next three years to expand its capacity at multiple sites. The company's board last week approved a budget of $28.9bn for 2021 to build out its production.

TSMC is managing the reduction in water usage and securing new water sources to maintain production, the company's chief executive C.C. Wei said in its quarterly earnings call. TSMC is building a water recycling plant in Tainan in the south of the country, the site of its most advanced chip facility. The plant is expected to start operation by the end of this year.

United Microelectronics (UMC) said yesterday in reporting its quarterly earnings that it is partnering with several of its customers to invest 100bn New Taiwan dollars ($3.59bn) over three years to expand semiconductor capacity at one of its facilities in Tainan. That is in addition to the $1.5bn it had already allocated to investing in new production. The 90,000 wafers/month plant is adding 10,000 wafers/month in 2021, and the new investment will add another 27,500 wafers/month by the second quarter of 2023. Customers are making deposits to secure long-term chip supply from the plant, reflecting expectations that the market will remain tight, UMC said.

UMC said earlier this month that it has deployed various water-saving measures and, like TSMC, has signed contracts to supplement its supply with water trucks from northern areas where water availability is less constrained.

Powerchip Semiconductor Manufacturing last month started construction of a new NT$278bn semiconductor plant in Tongluo in northwest Taiwan. The 100,000 wafers/month plant will start operation in phases from 2023. The plant will have a wastewater recovery rate exceeding 85pc, the company said.

By Nicole Willing