Benzinga | Apr 16, 2021 10:53AM EDT

Taiwan's Drought Poses Additional Threat To Looming Global Chip Crisis: WSJ

* Taiwan's severe drought could aggravate the ongoing global chip crisis as semiconductor producers required a massive water supply to clean the wafer base, etch patterns, polish layers and rinse components throughout the manufacturing process, the Wall Street Journal reports.

* Taiwan's semiconductor wafer-fabrication factories (fabs) accounted for two-thirds of the global manufacturing capacity. Most of that capacity belonged to contract chip manufacturer Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM).

* Taiwan derived most of its water reserves from seasonal typhoons. However, a lack of storms last year had choked supplies, prompting the government to start water rationing for over a million businesses and residents.

* Samsung Electronics Co Ltd (OTC: SSNLF) had to temporarily shut down two of its Austin chip factories due to Texas weather anomalies. Auto chip manufacturer Renesas Electronics Corp's (OTC: RNECF) Japanese plant was hampered by the February earthquake and a March fire.

* Taiwan's three science industrial parks responsible for most of the chip-making facilities had to limit their water intake but were exempt from stoppages to date. However, it was affecting some of the companies.

* Alternative sources of water and acceleration of conservation would escalate the production costs after supply to one of its chip facilities were reduced, stated Micron Technology Inc (NASDAQ: MU), which had facilities in Taichung and Taoyuan.

* Hsinchu-based TSM and United Microelectronics Corp (NYSE: UMC) had secured alternate water supply sources. TSM was also trying to utilize groundwater from their construction sites.

* TSM did not estimate any significant impact on operations despite the tight water supply.

* However, Taiwan's water crisis fueled by climate change could jeopardize global chip production due to their high production concentration in the island country, stated its officials and scholars.

* Taiwan introduced a drought disaster response agency in October.

* The government stopped the water supply for two days per week to some parts of the island from April. TSM aimed to reduce its water requirement per unit by 30% from 2010 levels by 2030.

* TSM accounted for around 4.5% of Taiwan's GDP in 2018, and chip sales accounted for 64% of Taiwan's export growth on average over the past five years.

* Germany has sought Taiwan's assistance to secure chip supply for German car manufacturers.

* Price action: TSM shares traded flat at $118.35 on the last check Friday.