As chip manufacturing technology progresses, semiconductor companies may face water scarcity, according to research by S&P Global Ratings.

Smartphones and televisions, among other common consumer electronics, include semiconductor chips. High-end processors from Taiwan Semiconductor Manufacturing Company (TSMC), the world's biggest contract chipmaker, are used by brands like Apple and Nvidia.

Manufacturers of semiconductors use enormous quantities of water daily to flush out their cooling systems and wash their wafer sheets to remove dust and other particles. S&P Global Ratings credit analyst Hins Li said, "The more advanced the semiconductor, the more process steps, the more water consumed."

Impact on Pricing

According to S&P statistics, TSMC's water usage per unit increased by more than 35% when it upgraded to 16-nanometer process nodes in 2015.

According to CNBC, more manufacturing procedures are required by advanced nodes, which is why S&P believes this was the major cause. It added that the global tech supply chain could be significantly impacted if TSMC, being the world leader in advanced chipmaking, experiences operational disruptions due to water.

A whopping 90% of the world's high-tech chips for artificial intelligence (AI) and quantum computing are manufactured by TSMC.

Because of the scarcity of water, TSMC might prioritize the production of more sophisticated chips over the maturation of chips with lower margins. This action, S&P said, might increase the company's profits.

Capacity development and the need to improve process technology are driving water consumption in the semiconductor sector to rise by mid to high-single-digit percent per year, based on the research.

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Further Hurdles

According to S&P, the water consumption of the world's chipmakers is comparable to that of Hong Kong, a metropolis with 7.5 million people.

"Water security will be an increasingly important factor to semiconductor firms' credit profiles. Mishandling of water resources could disrupt a firm's operations, hurt financial performance, and potentially hit customer relationships," Li said.

Meanwhile, chipmakers are finding it harder to control production stability due to climate change, increasing the frequency of severe weather events, droughts, and unpredictable precipitation.

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