The island of Taiwan is experiencing its worst drought in over 50 years. For the entire semiconductor industry, this could mean exponentially worsening shortages.

While only 20% of Taiwan's water supply goes toward industrial production, water is essential in processing silicon and for other aspects of chip manufacturing. To combat the issue, TSMC has ordered truckloads of water to be delivered to certain facilities to maintain production, as well as implementing water-saving practices. 

Taiwanese plants and foundries produce roughly 53% of the global semiconductor market, down from 66% in 2017. With four of the ten global semiconductor foundries having facilities in Taiwan, the possibility of water shortages through June 2021 could be a major blow to semiconductor production. 

graph for market share taiwan water shortages

Taiwan-based factories are identified in green. 

In Jan. 2021, TSMC announced efforts to reallocate wafer capacity for automotive applications to support the industry struggling to make a comeback after 2020. Automotive plants around the world are at a standstill due to chip shortages. In spite of reallocation efforts, supply is still struggling to meet the increased demand, and curbing production due to water shortages could further delay the recovery of the automotive sector.

TSMC's reallocation away from other applications and industries is increasing the semiconductor market volatility. Raw material shortages, plant fires and power outages, are just a few of the unforeseen events that have disrupted manufacturers from resuming normal operations. Along with the ongoing drought, Taiwan is also experiencing another wave of COVID-19 and geopolitical tension.


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