Material Insights · Understanding the Material World

Semiconductors and Water

Chip fabs rinse wafers repeatedly with ultrapure water, so a large fab draws millions of gallons a day and cannot run if supply fails. Where fabs are built, and how much water they recycle, is now a siting decision alongside power and skills.

Semiconductors (industry) and Water (commodity): 3 relationships.

How they are linked

1. Ultrapure water

Physical flow · Strong · Water to semiconductors

Cleaning and etching steps leave residues that must be rinsed off with water far purer than drinking water, so fabs run their own purification plants; the site rates water 5 of 5 on criticality for contract foundries.

  • 5 of 5 criticality of water for contract foundries; 4 of 5 for integrated and memory makers
  • up to 6.7 million gallons a day water use of a large fab, industry estimate
  • about 212 million litres a day TSMC's reported water use, 2021

Buying the water is the small part of the bill: one industry estimate puts treatment and disposal at about 30 dollars for every dollar spent acquiring water, two-thirds of it on purification to ultrapure levels. Because purity, not just volume, is the requirement, a fab cannot simply switch to any local supply when its usual source is short.

Enterprise types that depend on it:

  • Contract foundries: large daily volumes of ultra-pure water (criticality 5 of 5)
  • Integrated device makers and memory makers: ultra-pure water (criticality 4 of 5)

Sources: Material Insights; Robeco; WaterWorld

2. Drought stops fabs

Shared risk · Strong · Water shortage constrains chip output

Fabs run continuously and cannot store weeks of water, so a drought in a fab cluster threatens output for customers worldwide.

  • 15% cut in water supply to companies in two Taichung science parks, from April 2021

In 2021 the monsoon rains that normally refill Taiwan's reservoirs had failed; the government cut supply to science park users in Taichung and TSMC trucked water in from the wetter south. The cuts came during a global chip shortage, so a local water problem became a worldwide supply worry.

Sources: Fortune; Bloomberg (via BNN Bloomberg)

3. Allocation and reuse rules

Policy · Rising · Water policy shapes where and how fabs are built

Governments allocate scarce water between farms, cities and fabs, and approvals for new fabs increasingly depend on recycling commitments and dedicated supply.

  • 87% share of manufacturing water TSMC recycled, 2019
  • about 65% recycling at TSMC's first Phoenix fab, 2025; about 85% targeted once its reclamation plant opens in 2028
  • 50 MLD potable water treatment plant serving India's Dholera investment region

TSMC's first Phoenix fab uses about 4.75 million gallons a day, and its three planned fabs are projected to need about 16.4 million, against roughly 4.2 million the city will supply, which is why the company is building a reclamation plant. Reuse lowers intake but not to zero, since cooling towers evaporate water. In India, the Dholera region, being developed as a semiconductor hub, has a 50 MLD potable plant and a separate recycled-water network for industry.

Sources: Fortune; Axios Phoenix; Swarajya

For investors

Key learnings

  1. Water is a hard operating constraint for fabs: a supply cut cannot be bridged with inventory, so water stress in a fab cluster is a direct output risk.
  2. Recycling rates of 65 to 90% are now designed into fabs, which shifts water risk from volume towards treatment cost and energy.
  3. Leading-edge capacity sits in water-stressed places such as Taiwan and Arizona, so drought data belong in chip supply analysis.

What to track

  • Reservoir levels in Hsinchu, Taichung and Tainan: Low levels before the monsoon raise the risk of supply cuts to fabs (Daily · Taiwan Water Resources Agency)
  • Chipmakers' water withdrawal and recycling rates: Rising recycling lowers exposure; rising withdrawal per wafer flags stress (Annual · company sustainability reports)
  • Colorado River shortage declarations: Deeper cuts tighten water supply in central Arizona, where new fabs are being built (Annual (August) · US Bureau of Reclamation)

For policymakers

Key learnings

  1. A fab needs a reliable, dedicated water supply measured in millions of litres a day, which should be secured before incentives are approved.
  2. Mandating high reuse and recycled-water networks, as in Dholera, lowers the conflict between fabs and farm and city users.
  3. Taiwan's 2021 drought shows that even a priority industrial user can face cuts, so backup sources matter as much as headline capacity.

What to track

  • Water allocated to semiconductor parks and actual drawal: Shows whether supply keeps pace as fabs ramp up (Annual · state industrial development corporations)
  • Share of fab water from recycled sources: Higher share reduces pressure on freshwater (Annual · company and park disclosures)

India

India's semiconductor push is still early, and water supply is being planned in alongside it: the Dholera investment region in Gujarat, pitched as a chip hub, runs a 50 MLD potable treatment plant and a separate recycled-water network for industry.

Sources

  1. Semiconductors: materials, Material Insights (2026)
  2. Chipping away at water supplies, Robeco (2021)
  3. Chip shortage: Taiwan's drought and TSMC's water use, Fortune (2021)
  4. Wet woes for the semiconductor industry, WaterWorld
  5. Taiwan cuts water supply for chipmakers as drought threatens to dry up reserves, Bloomberg (via BNN Bloomberg) (2021)
  6. TSMC building water reclamation plant for Phoenix facilities, Axios Phoenix (2025)
  7. How Dholera Special Investment Region is positioning itself to become a semiconductor hub, Swarajya (2024)