Coronavirus outbreak and drought threaten TSMC’s planned world dominance
In early 2020 as the Coronavirus started to spread, bad things were forecast for Taiwan. Its close proximity to China, and the economic ties that bind these neighbors set Taiwan up to be a key location in the battle against the virus. Instead, Taiwan weathered the storm and came out of the crisis with international plaudits for its handling of the virus. Using a combination of strict quarantine on arrivals, and rigorous mask usage, Taiwan looked to have beaten the virus. Up until the end of April 2021, from a population of just under 24 million, Taiwan had just 10 deaths, and barely 1000 confirmed cases, mostly from people flying in from other countries. Taiwan was a world success story into how to combat the Coronavirus.
Straddling the Tropic of Cancer, Taiwan is a tropical island, and as such has a tropical climate. Estimates put Taiwan’s average rainfall at around 2500mm a year, which would place it firmly in the top 20 countries worldwide. Taiwan is wet, humidity often exceeds 90%, and spring rains and summer typhoons soak the island on a yearly basis.
That’s a good thing. In recent years Taiwan has become an integral part of the global supply chain, and there is one product that they particularly excel in. If you own an electronic device (pro tip: if you’re reading this you do), then it’s likely the heart and soul of that device, the semiconductors that do the millions of computations that make the device run, were made in Taiwan, or at the very least, by a Taiwanese company. Of all the Taiwanese semiconductors manufacturers, one company rules the roos, Taiwan Semiconductor Manufacturing Company (TSMC).
Making semiconductors is thirsty work, it takes roughly 10 gallons of water to make a semiconductor chip. Multiply that by around 10,745,000 (TSMCs 2018 estimated production output) and we’re talking about a hell of a lot of water, it’s a good thing they’re based in wet Taiwan!
In the past year as the coronavirus has incapacitated the world, Taiwan has kept on chugging along. Without facing lockdown they have continued to supply semiconductors to all your favorite brands. Apple, Nvidia, Sony, a host of other big businesses all get their supplies from TSMC, and they can’t get enough. If you’re not interested in Tech you may not have realized, we’re currently in the grip of a worldwide semiconductor shortage. From computers and cars to your very own fridge, we’re in the midst of a smart revolution, and everyone wants a piece of that pie. Just the smart home market alone is expected to be worth USD 622.59 billion by 2026. That’s a lot of money, and TSMC are at the heart of this revolution.
So, things are looking great for Taiwan and for TSMC. Unaffected by the global virus, and supplying a highly in-demand product, making great use of the weather to churn out products; things couldn’t be better. Except, this rosy future has been a balancing act, and Taiwan is teetering. Right now Taiwan is currently facing its worst drought in 56 years. While reservoirs in the comparatively wet north are doing ok, TSMC fab locations are split between Hsinchu, in central Taiwan, and Tainan, in the south. As of writing, the second Baoshan reservoir that supplies Hsinchu science park is sitting at 3.37%.
Needless to say, TSMC is concerned. In April this year, a much-mooted pipeline to bring water into Hsinchu from neighboring Taoyuan county was finally completed. The project, two decades in the works, was heralded as “significant for Taiwan’s national development”, and go a long way to easing the water needs of Hsinchu science park, but water levels in Taoyuan are not faring much better. Meanwhile, the two reservoirs that supply Tainan Science park, the location of TSMCs Tainan Foundries are running at 10.2% and 5.97% capacity respectively.
In the midst of this record-breaking drought, Covid-19 has finally hit Taiwan. Due to an outbreak at a quarantine hotel, that quickly spread to a red-light district in the capital Taipei, Taiwan has been recording record numbers of cases, and the situation seems to be deteriorating. The country currently standing at level 3 of a 4 tier restriction system. Workplaces remain open, but with level 4 restrictions, or full lockdown seemingly impending TSMC faces yet another potential issue. In an email from TSMC’s HR department, they stated that “TSMC’s primary consideration is epidemic safety protection”, and that rolling updates are expected as the situation progresses. At level 4 restrictions all non-essential work must be halted, and this will obviously have a significant impact on production throughout their Taiwan facilities, and upon the global semiconductor industry as a whole.
As the country wrestles to bring the situation under control there seems to be some optimism in the marketplace. On the NYSE TSMC shares have recovered, after dropping under $109 in the past week, to sitting just over $113 at the time of writing. Whether that optimism will continue as the situation progresses remains to be seen. As the grey clouds roll over Taipei they seem to mirror the feeling in the country, is there a storm coming? And what does that mean for this small country fighting to be seen on the world stage?