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Taiwan, the global chip manufacturing plant and home of TSMC, battles Covid and the climate crisis

Taiwan – which accounts for more than half of global potato chip production – has struggled for months with its worst drought in more than 50 years, an event that experts say could become more frequent due to the effects of climate change .

“There is clearly pressure in the semiconductor industry,” Mark Williams, chief economist for Asia at Capital Economics, wrote Thursday in a note referring to water shortages and cases of coronavirus, as well as continuous power outages.

The environmental disaster has already been a challenge for island chipmakers, including the industry leader Taiwan Semiconductor Manufacturing Company (TSM). TSMC said it uses 156,000 tonnes of water per day to produce its chips, the equivalent of about 60 Olympic-size swimming pools.

Water is used to clean dozens of layers of metal that go into the composition of a semiconductor.

“In a chip, there are a lot of billions of transistors, and we need a lot of metal layers to interconnect all the signals,” said Jefferey Chiu, an electrical engineer at National Taiwan University.

“We have to clean the surface over and over again with each process completed,” Chiu said.

Taiwanese authorities have limited the supply of tap water across the island in response to the drought.

TSMC has already attempted to alleviate the shortage by trucking water and increasing recycling rates. The company told CNN Business that production has so far not been affected.

“We have detailed response procedures to manage water shortages at different stages,” he said. “With our existing water conservation measures, we are able to manage current government water reduction requirements without impacting our operations.”

Indispensable technology

Solid-state chips are an essential part of everything from smartphones to cars to washing machines.

Super advanced chips are difficult to manufacture due to the high cost of development and the knowledge required to manufacture them, which means that much of the production is concentrated among a handful of suppliers.

TSMC is the world’s largest chip subcontractor and its expensive manufacturing facilities supply many companies, including Apple (AAPL), Qualcomm (QCOM) and Nvidia (NVDA)– who can design their own chips, but do not have the resources to make them.

The Taiwanese company’s advanced technology has also made it a key player as the United States and China engage in a bitter rivalry to develop the cutting-edge technologies of the future, such as artificial intelligence, 5G and cloud computing.

“TSMC is the key to many different companies,” said Alan Priestley, vice president analyst at Gartner. “Most of the high performance electronics you use today, like cell phones and tablets, are all made by TSMC. “

Limited supply

The global semiconductor industry is currently under great pressure. Chips have been in short supply lately, in large part due to volatile demand caused by the pandemic, US sanctions on Chinese tech companies and extreme weather conditions. A growing number of tech companies have reported difficulties securing semiconductors, which analysts say could delay production or increase prices paid by consumers.

This makes any threat to Taiwanese production all the more important to contain.

Besides the drought, officials have also expressed concern over the autonomous island’s coronavirus outbreak, which began last month and has since become the worst since the start of the pandemic.
James Lee, director general of the Taipei Cultural and Economic Office in New York City, told Bloomberg last month that the industry could face “logistical problems” as he called on the United States to ship vaccines to Taiwan.
Taiwan, the global chip manufacturing plant and home of TSMC, battles Covid and the climate crisis

“That’s why it’s urgent,” Lee said. “We hope the international community can help release vaccines as soon as possible to help control the epidemic.”

Lee’s office declined a CNN Business interview request, citing his busy schedule.

TSMC said last month that two of its employees were diagnosed with Covid-19, although it said operations continued as usual. And Chiu, the engineer from National Chengchi University, said that many companies are likely to be able to mitigate the risks because the chip manufacturing process is highly automated and manufacturers have separated employees into groups to limit any spread of the virus.

Yet at least five semiconductor manufacturers southwest of the capital Taipei have been forced to suspend operations as migrant workers fall ill.

King Yuan Electronics, a leading semiconductor testing and packaging service provider, had to suspend operations for two days last weekend after more than 200 staff tested positive, according to the Central News Agency, the island’s official news source. All migrant workers, about 30% of the company’s 7,000 workers, were quarantined for two weeks after a cluster of viruses was reported in their dormitories.

While King Yuan said he has deployed more Taiwanese workers to his production lines, he warned that factories can only operate at a limited capacity.

Data for April on global semiconductor orders suggests that “capacity constraints will persist,” Williams of Capital Economics wrote last month, noting that there had been far more orders than exports from from Taiwan.

“This will not continue indefinitely: Semiconductor orders last month were 74% higher than before the pandemic, which is not sustainable,” Williams said, adding that the order book “will take some time. time to subside “.

Taiwan, the global chip manufacturing plant and home of TSMC, battles Covid and the climate crisis

Long term consequences

Experts say the water shortage problem, meanwhile, could get worse in the future. Climate change is likely to cause less rainfall in Taiwan over the next few decades, which could lead to more frequent droughts, according to Hsu Huang-hsiung, a climatology researcher at Academia Sinica.

“Our projections show that the drought will get worse in the future. So this year has provided a good opportunity to test the sustainability of our semiconductor industry,” Hsu said.

Taiwan, the global chip manufacturing plant and home of TSMC, battles Covid and the climate crisis

This could potentially limit the development of advanced chips in Taiwan, according to Chiu. Indeed, as the technology behind semiconductors becomes more sophisticated, chipmakers will need more water during the chemical processes needed to manufacture them.

Water shortages aren’t the only environmental issue at play either. Power outages caused by growing demand for electricity in Taiwan have also stifled production. TSMC said the power outages even affected some of its facilities.

“We need to reduce our carbon dioxide emissions. But on the other hand, we need to generate more electricity,” Hsu said, adding that Taiwanese semiconductor companies will need to invest in more renewables to ensure a sustainable future.

TSMC said it was already working to consolidate its energy supply by partnering with solar power plants and wind farms across the island. Last year, it announced its intention to supply its production entirely with renewable energies by 2050.

– Will Ripley, Hanna Ziady, Clare Duffy and Jill Disis contributed to this report.


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