Why Intel and TSMC are building water-dependent chip plants in Arizona

Electric vehicle driven through the Arizona desert

The world’s largest semiconductor manufacturers are rapidly trying to build new factories as the global chip crisis continues to wreak havoc on a host of industries.

American semiconductor giant Intel announced in March that it plans to spend $ 20 billion on two new chip plants in Arizona. Separately, TSMC (Taiwan Semiconductor Manufacturing Company) said it was going to build a $ 12 billion factory in Arizona, and CEO CC Wei said on Wednesday that construction had already started.

However, the Grand Canyon State may not seem like the most obvious place for a chip “foundry” or “fabulous”, as high-tech manufacturing plants consume millions of gallons of water every day.

Today, in the face of climate change, Arizona faces a deepening water crisis and some of the most important aquifers in the state have an uncertain future.

Arizona received just 13.6 inches of rain on average per year between 1970 and 2000, according to NOAA’s National Climate Data Center, making it the fourth driest state in the country. By contrast, Hawaii and Louisiana recorded the highest levels of average annual precipitation in the US during the same time period, reporting 63.7 inches and 60.1 inches, respectively.

“Water is a key element in semi-manufacturing, but the infrastructure has been put into operation [in Arizona] to ensure adequate supply to meet current industry needs, “Alan Priestley, vice president analyst at technology research firm Gartner, told CNBC.

A key consideration of any new construction would likely be contributions to improve the water supply infrastructure, he added.

Glenn O’Donnell, vice president and chief research officer at analyst firm Forrester, told CNBC that chip manufacturing plants “religiously recycle water,” adding that it is a bit like a swimming pool in an enclosed building.

“It takes a lot to fill it up, but you don’t need to add a lot to keep it running,” he said. “Also, being in an enclosed space, much of the water that evaporates can be captured with a dehumidifier and returned to the pool. Factories will do similar things with their own water use. “

Intel notes on its website that it is striving for “net positive water use” in Arizona and has funded 15 water restoration projects that aim to benefit the state. “Once fully implemented, these projects will restore approximately 937 million gallons each year,” says the company.

Beyond the water

TSMC and Intel, two of the biggest heavyweights in the chip industry, have chosen to expand in Arizona for several other reasons, according to analysts.

Intel has had a presence in Arizona for more than 40 years, and the state is home to a well-established semiconductor ecosystem. Other major chip companies with a presence in Arizona include On Semiconductor, NXP, and Microchip.

Intel now employs more than 12,000 people in Arizona, and the state is home to Intel’s newest manufacturing facility, Fab 42.

As Intel has grown its presence in Arizona, local universities have “established a strong reputation for semiconductor design courses and research that provide a highly skilled workforce for local semi-industry,” Priestley said. “This has helped create an ecosystem of companies to supply the products and services needed to make chips.”

TSMC will be able to “take advantage of these resources and [the] supply chain supplier ecosystem, ”Priestley said.

Local tax exemptions and incentives “will have played an important role” in the initial site selection, he continued, noting that land availability, land costs, housing costs and the local economy will also have been considered.

Seismically stable

The Arizona case does not stop there. Its seismic stability and relatively low risk of other natural interference attract chipmakers, O’Donnell said.

“A chip factory cannot shake, not even a microscopic amount,” he said, adding that they placed those factories in the rock to keep them still. “Even a 0.5 Richter shake can ruin an entire potato chip crop.”

That said, Intel does have a few chip plants on the west coast of the United States, where the soil is most susceptible to earthquakes. The company has a large presence in Hillsboro, Oregon, for example.

“The West Coast is great, but they need to take great steps to isolate the quake,” O’Donnell said. “They don’t need such drastic measures in Arizona because it shakes a lot less.”

Arizona is also immune to most other natural disasters like hurricanes and wildfires, O’Donnell said.

With its abundant sunshine, Arizona also has “reliable, abundant and green electrical power,” O’Donnell said, referring to the Salt River Project as a local power company in the Phoenix area that serves large energy consumers. A chip foundry needs energy on the scale of a steel plant, according to O’Donnell.

Ultimately, it comes down largely to politics.

“The political machine in Arizona is determined to make the state’s business good,” O’Donnell said. “More business equals more and better jobs equals more votes for the powerful. The recent announcements from Intel and TSMC come from a lot of help from federal, state and local government entities. “

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