Climate change, in combination with rapid urbanization, is driving tougher and less-consistent water availability in the Asia Pacific region by intensifying floods and droughts[i]. While Taiwan has historically heavy rainfall, it is also known for its long dry season and poor geographic water retention[ii]. Therefore, Taiwan Semiconductor Manufacturing Co. (“TSMC”) enjoyed a head start against climate change by investing heavily in water use reduction and water recycling, spending $25mm annually and reducing overall net water usage per chip to one third of U.S. counterparts[iii].
Semiconductors are critical components in nearly every modern electronic product we use as a society, from transistor radios to iPhones. Semiconductor manufacturing is currently a ~$335 billion global industry[iv], and drives a significant portion of the world’s GDP. By 2018, semiconductor unit shipments are expected to top 1 trillion, representing 9% annual growth over 40 years[v].
Semiconductor wafer thickness tends to be measured in micrometers with transistors the size of DNA, meaning any unwanted particle can destroy the unit. In addition to carefully-maintained clean rooms that eliminate all potential pollutants, plants use ultrapure water (“UPW”) – which has been treated to 1,000x the purity of drinking water – for cleaning, etching, and rinsing components throughout the manufacturing process.
Semiconductor manufacturing is therefore a water-intensive operation, and the industry spends approximately $1bn on water and wastewater systems and services annually[vi]. A single manufacturing plant (“fab”) can use 2-9 million gallons of water per day[vii]. Intel, the world’s largest semiconductor manufacturer, withdrew 9 billion gallons of water in 2015[viii], the equivalent of ~75 thousand American families’ normal water use[ix]. Issues with water supply can severely reduce fab yield or shut down a plant.
TSMC recycles water through techniques such as “electrowinning,” a process borrowed from the mining industry through which copper residue is removed from wastewater, allowing it to be recycled into existing in-house UPW purification systems[x]. Interestingly, the process of purifying recycled wastewater into UPW tends to be more efficient given the company conducting it knows its exact makeup, while imported water could have any number of unknown impurities[xi]. The payback period on recycling plants can be as low as 6-12 months given the aforementioned UPW purification efficiency, avoidance of heavy metals disposal fees, the salable copper recovered as a part of the process, and the lower water input costs[xii] [xiii]. Given these and other initiatives, TSMC’s process water recycling rate is close to 90% in some fabs. This proactive resource management has allowed the company to avoid interruption despite the lowest rainfall in Taiwan since 1947 and tighter government regulations on industrial water usage[xiv].
At TSMC’s level of recycling, incremental improvements are starting to come at a huge energy cost, negating the benefits[xv]. Per-unit water usage declines at TSMC have stagnated in the last few years due to increasing complexity as Moore’s law chugs along (albeit more slowly) and additional layers are added to each chip. More-compact next-gen chips are expected to require 1.5x the water given lower tolerance for impurities, and the increasing rate at which we replace electronics will drive even more demand[xvi].
TSMC must therefore figure out a way to continue to compete effectively as incremental high-ROI abatement strategies disappear and water issues begin to impact production capacity. It, along with other companies with fabs in other impacted regions, stands to lose a competitive edge as increasing costs may cause customers to switch suppliers. Of course, the Taiwanese government would likely give breaks to its biggest industry, but even that can only last so long.
TSMC and other Taiwanese industrials have pushed the government to invest $450mm into wastewater reuse plants for industrial users, but further measures may be needed[xvii]. TSMC could amp up internal purification capabilities to convert ocean water into UPW. A high-tech desalination plant (given extremely strict impurity tolerance) with 4 million gallons per day of capacity could cost less than $100mm, far less than the net cost of relocating a fab[xvii]. New or relocated fabs can also be built outside of Taiwan with water conservation fundamentally built into both location and design. Fabs cost billions of dollars, but the business cost of production interruptions due to water rationing may prove to be even greater long-term.
China accounts for ~50% of TSMC’s revenue, and its growing, insatiable demand for semiconductors has prompted a ~$100bn+ government investment to close their net semiconductor import gap[xiv]. Chinese electronics manufacturers will be looking to source from new government-sponsored domestic manufacturers, and any production interruptions from TSMC’s water-constrained fabs could put them on the chopping block.
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[xviii] Carlsbad / San Diego plant cost $1bn for 50mm gallons per day, implying $20 per gallon per day. The Mercury News: Nation’s Largest Ocean Desalination Plant Goes Up Near San Diego; Future of the California Cost? [Link]