Why Intel and TSMC are constructing water-dependent chip factories in Arizona

Electric vehicle is driven through the Arizona desert

The largest semiconductor manufacturers in the world are quickly trying to build new factories as the global chip crisis continues to have devastating effects on a multitude of industries.

US semiconductor giant Intel announced in March that it would spend $ 20 billion on two new chip factories in Arizona. Separately, TSMC (Taiwan Semiconductor Manufacturing Company) said it would build a $ 12 billion factory in Arizona, and Chief Executive CC Wei said on Wednesday that construction has already started.

Grand Canyon State doesn’t seem like the most obvious place for a chip “foundry” or “fab”, however, as the high-tech manufacturing facilities swallow millions of liters of water every day.

Arizona is currently facing a worsening water crisis in the face of climate change, and some of the state’s major aquifers have an uncertain future.

According to the NOAA National Climatic Data Center, Arizona averaged just 13.6 inches of rainfall per year between 1970 and 2000, making it the fourth driest state in the country. Conversely, Hawaii and Louisiana recorded the highest average annual rainfall in the US during the same period at 63.7 inches and 60.1 inches, respectively.

“Water is a key element in the manufacture of semi-finished products, but the infrastructure has been created [in Arizona] to ensure adequate supplies to meet current industry needs, “Alan Priestley, vice president analyst at technology research firm Gartner, told CNBC.

An important aspect of any new build would most likely be contributions to improving the water supply infrastructure, he added.

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

“It takes a lot to fill it, but you don’t have to add a lot to keep it going,” he said. “In addition, a large part of the evaporating water can be collected in a closed room with a dehumidifier and fed back into the pool. The fabs will do similar things with their own water usage. “

Intel states on its website that it is working to achieve “net positive water use” in Arizona and has funded 15 water restoration projects for the benefit of the state. “When fully implemented, these projects will restore an estimated 937 million gallons each year,” says the company.

Beyond water

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

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

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

As Intel has stepped up its presence in Arizona, local universities have “built a reputation for semiconductor design courses and research that provide a highly skilled workforce for the local semiconductor industry,” said Priestley. “This has helped create an ecosystem of businesses that deliver the products and services needed to make chips.”

TSMC will “be able to tap into these resources and” [the] Supply chain provider ecosystem, “Priestley said.

Local tax breaks and incentives “played a big role” in the initial location selection, he continued, pointing out that land availability, land costs, housing costs and the local economy were also taken into account.

Earthquake stable

The case for Arizona doesn’t stop there. Its seismic stability and relatively low risk of other natural disturbances are attractive to chipmakers, O’Donnell said.

“A chip factory can’t wobble, not even microscopically,” he said, adding that they put such factories in the ground to keep them still. “Even a 0.5 Richter shake can ruin a whole crop of chips.”

However, Intel has some chip factories on the US west coast, where the ground is more prone to earthquakes. The company has a strong presence in Hillsboro, Oregon, for example.

“The west coast has fabs, but they have to take big steps to isolate the tremors,” said O’Donnell. “You don’t need such drastic measures in Arizona because it wobbles a lot less.”

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

With abundant sunshine, Arizona also has “reliable, abundant, and green electricity,” said O’Donnell, referring to the Salt River Project as a local Phoenix area utility serving large consumers of electricity. According to O’Donnell, a chip foundry needs electricity the size of a steel mill.

Ultimately, it boils down to politics.

“The Arizona political machine is determined to make the state business-friendly,” said O’Donnell. “More business means more, and better jobs mean more votes for power brokers. The recent Intel and TSMC announcements come with a lot of help from federal, state and local authorities.”