Semiconductor producers’ growing demand for water could outstrip reliable supply, explains Erica de Souza, APAC Regional Manager, Water Security at CDP.
What does a Toyota Prius, a dishwasher and a long-range laser-guided hypersonic missile have in common? The answer is semiconductors, the ubiquitous microchips that power the modern economy. They underpin the transformative innovations, like artificial intelligence, that are set to revolutionise our future. Prevalent in almost every industry, from defence to healthcare, disruptions would have serious consequences for other supply chains across a vast range of direct and indirect customers.
Semiconductor industry sales are forecast to reach a record of US$602 billion in 2024, a figure larger than the GDP of Sweden. Their importance has reached the centre stage of geopolitics, evident through the US’s export controls on China’s access to advanced semiconductor technology. Both governments have also committed billions of dollars to bolster local semiconductor research, development, and manufacturing through the US’s CHIPS and Science Act, and China’s Big Fund. Their eagerness to domesticate the semiconductor industry is no surprise when you consider how vulnerable its supply chain is.
Concentration risk
Semiconductor manufacturing is highly geographically concentrated, and especially so for certain types of chips. As of 2022, South Korea produces 44% of all memory chips (data storing chips), and Taiwan produces 41% of all logic chips (the ‘brains’ of computing devices) including more than 90% of the most advanced chips. The largest semiconductor foundries that constitute 90% of the global market share are TSMC and UMC from Taiwan, Samsung Electronics from South Korea, SMIC from China, and GlobalFoundries from the US. GlobalFoundries too has a significant proportion of their manufacturing facilities based in Asia, specifically in Singapore.
This means that the semiconductor supply chain is particularly susceptible to otherwise very localised risks in any of these Asian economies. As climate change intensifies, an often-overlooked risk that poses a significant threat is water. In 2021, Taiwan experienced its worst drought in over 50 years. Semiconductor companies spent millions of dollars trucking water from less affected parts of the island to keep their operations afloat, exposing the industry’s critical dependency on already vulnerable water resources. TSMC, UMC, Samsung Electronics and GlobalFoundries have disclosed on water to CDP, a testament to its importance in semiconductor manufacturing.
Rising demand
Semiconductors are manufactured on silicon wafers in layers which require large quantities of water to produce. The water, mostly ultrapure, is used to wash away even the most microscopic contaminants from each layer before the next is applied. Ultrapure water itself requires extensive treatment of large quantities of municipal water. In CDP’s 2023 questionnaire, TMSC reported using 137 litres of water per mask layer for each 12-inch equivalent wafer. For context, this is close to the average daily consumption of water per person in the UK. Chips produced by TSMC, such as those used in Apple’s iPhone 15 Pros and Nvidea’s to train AI systems, have 80 layers each.
Producing one 12-inch equivalent wafer of each of these chips alone uses well over 10,000 litres. Considering that in 2022, TSMC’s manufacturing facilities and subsidiaries produced 15 million 12-inch equivalent wafers, the amount of water used across semiconductor fabrication is staggering.
In 2022, the four largest semiconductor companies reported to CDP total annual withdrawals of 321 billion litres of water, up 9% from the previous reporting year. This is enough water to fill 128,000 Olympic-sized swimming pools, the length of which could get you from Munich to Mumbai. It is no wonder that all four companies have reported increases in water-related capital expenditure to expand their water conservation, wastewater treatment and recycling facilities. This is essential for them to cope with increasing global demands which show no sign of abating. These companies have also reported anticipated increases in water-related operating expenditures for the next reporting year.
As research and development into semiconductors continues to progress, their architecture becomes more complex with more layers added to each silicon wafer and more water will be required in their fabrication. Samsung Electronics announced in 2023 that it will begin mass production of the world’s first 300-layer NAND flash memory chips. Though they have set targets to reduce daily water consumption by over 40,000 litres a day by 2030, their operations, as with the entire industry, will continue to get thirstier each year.
Cascading effects
Reliable access to abundant water resources is no longer a given. New CDP research shows how rising temperatures have resulted in more frequent droughts with cascading effects on supply chains. If this occurred in just one of these countries where key foundries are situated it could have serious ripple effects on a range of downstream industries. Among those most affected would be electronics manufacturers, an industry that Asia is also highly specialised in. Supply chain disruptions in the semiconductor industry due to water risks could therefore result in significant financial consequences for entire economies, with many in Asia being particularly vulnerable. CDP data reveals that 65% of all disclosing electrical and electronic manufactures are based in Asia.
The semiconductor industry will not slow down. Transparency on water use needs to increase if the industry wants to build resilience and protect against external shocks. This is essential not only to sustain their operations, the supply chains, and economies that depend on them, but also to ensure there is enough water to go around for the communities and industries that rely on this fragile resource.
