TAIPEI -- Taiwan's tech manufacturers fear their output is under threat from the island's worst drought in decades, risking more turmoil for global supply chains already strained by shortages of semiconductors and other key components.
Taiwan's government will on Thursday further tighten water use in several cities that are home to a cluster of important manufacturers. Plants in Taoyuan, Taichung, Hsinchu and Miaoli will have to cut consumption by up to 11%, on top of a 7% cut requested last month.
Manufacturers in the cities of Chiayi and Tainan -- where Taiwan Semiconductor Manufacturing Company, the world's biggest contract chipmaker, builds iPhone processors -- will be asked to reduce water use by 7% from Thursday.
Taiwan is one of the world's most important sources of the advanced chips that power everything from cars and phones to servers and game consoles. Chip production requires massive amounts of water, but reservoirs in Taiwan are critically low and authorities have already cut supplies to agriculture to support industrial and residential use.
The water concerns come as the chip sector battles worldwide shortages. Taiwan has promised to help countries like the U.S., Germany and Japan by speeding up the manufacture of automotive chips to ease a global crunch that has already hit car production.
"All the industries are concerned whether the situation will be alleviated soon. ... No one wants to see the worst-case scenario of anyone being forced to dial back production capacity due to water issues," a executive at Winbond, a leading memory chipmaker, told Nikkei Asia.
Large industrial users will be checked weekly to ensure the targets are met, a top government official told Nikkei Asia.
The water needs of the island's manufacturers are growing despite efforts to conserve supplies.
TSMC needs 156,000 tons of water a day, according to the company -- roughly one-third of all water used in Taiwan's key science parks. The company has initiated contingency plans to mobilize trucks from this week to supply water to production bases across the island.
Water quality "is extremely critical to chip production lines and the processes. ... It could affect product performance, so that needs to be handled very carefully," a person with knowledge of the plan said. "So far the situation is manageable, but if it does not rain properly and continues like this till the end of May, that would be a real big problem."
TSMC has long-term contracts with water truck companies, which provide groundwater and well water that the chipmaker uses to supplement water from reservoirs in times of shortages, the person familiar with the plan said.
Nina Kao, a spokesperson for TSMC, said of the plan to truck water: "Deployments are still limited and the main purpose is to get the involved staff prepared for possible future needs."
TSMC reused 86.7% of its water, or 133.6 million tons, and saved an additional 7.93 million tons in 2019, according to its most recent social responsibility report.
Taiwan's No. 2 contract chipmaker United Microelectronics said it will start to ask trucks to supply water to support its production from Thursday, company CFO and spokesperson Liu Chi-tung told Nikkei.
"As the water-saving rate needs to increase to 11%, we need the support of additional water trucks," said Liu. "Currently we only need a small percentage of additional water, but the company will adjust accordingly based on the dynamics."
Winbond, whose production is mostly in the central city of Taichung, has also planned tests of additional water trucks, the company executive said. The memory chipmaker has forged a business continuity plan to operate normally if the situation deteriorates and the water-saving rate must reach as high as 25%, the person said.
AU Optronics, an Apple and Tesla display supplier, has prepared a series of measures to save water if the situation worsens, including reducing use in manufacturing, employee restaurants and restrooms, to keep its operations running.
Unimicron, the world's biggest maker of ajinomoto-build-film board -- the key substrate for high-end automotive computing chips and chips used in 5G base stations -- said the water shortage is a concern, especially around Hsinchu, the heart of the chip industry.
"We've been reserving water and we will use rental water trucks to support our use if necessary," company CFO Michael Shen said in an earnings call on Wednesday. "If we keep having no rain ... it will be difficult for us to address the issue."
Water storage rates at Baoshan and Baoshan Second reservoirs -- which supply Hsinchu's Science Park -- stood at just 25.6% and 14.7% at noon on Wednesday.
For the two reservoirs supplying Taichung Science Park, the storage rates were 16.6% and 13.9%, respectively, while the reservoir for Tainan Science Park was at only 15%.
Taiwanstats, an open data site, cited data from the island's Water Resources Agency showing that these reservoirs will only be able to supply water for between 30 and 60 days unless there is sufficient rainfall in time to replenish them.
Taiwan's chip sector, the second-largest after the U.S., is the crown jewel of the island's economy. However Taiwan's limited supplies of water, electricity and labor pose uncertainties for longer-term economic growth.
Taiwan usually averages at least three typhoons each year, bringing much-needed rain, but none hit the island in 2020. The average water level of the nation's reservoirs is 1,000 millimeters lower than a year ago, according to the Water Resources Agency.
"The situation is indeed more 'special' than we faced in 2015. Given there was no typhoon at all, we sensed the urgency and started responsive measures and discussions to brace for the water shortage as early as July last year -- months before the traditional dry season began," Lai Chien-hsin, Director-General of the agency, told Nikkei Asia.
Su Chen-kang, director-general of Southern Taiwan Science Park, told Nikkei Asia that the tech and manufacturing sectors were on high alert, with messaging communication groups "to make sure all the companies have the correct messages about water supply so that they could come up with better strategies and plans to battle the shortage".
To keep the tech manufacturing sector running, the Tsai Ing-wen administration on Feb. 1 started using a new water pipeline to draw water from Taoyuan to support Hsinchu. The government in late 2020 also approved an emergency plan to build a desalination plant in less than 70 days to supply more water to Hsinchu. The plant came online on Tuesday.
"Climate change is dynamic and we have to always think ahead for the worst-case scenario. The government has been preparing for this and trying to increase supply since last year but we also need not just the suppliers but everyone in the nation to help conserve water, as the resources are limited and precious," Lai said.
