FB Pixel no scriptCan investment from TSMC, Infineon, and others revive Europe's chip dreams? | KrASIA

Can investment from TSMC, Infineon, and others revive Europe’s chip dreams?

Written by Nikkei Asia Published on   7 mins read

Skeptics say more government subsidies, skilled workers, and end customers are needed.

For over three decades, Dresden has been at the heart of European chipmaking, and for most of that time, Jens Drews has had a front row seat to the ebbs and flows of the industry.

In 1996, he watched as Advanced Micro Devices of the US took farmland in the eastern German city, known for its baroque architecture and nicknamed the “Florence on the Elbe,” and built a sprawling clean room to produce processor chips for computers.

A decade and half or so later, another American company, Globalfoundries, bought the facility and turned it into a major supplier to global chip developers. Covering an area the size of seven football fields, it is the biggest contract chipmaking facility in Europe.

Drews, whose career spans both companies, is now witnessing what could be the area’s most significant change yet.

“We’ve seen tremendous investment, tremendous interest in the region,” Drews, director of communication and government relations with Globalfoundries, told Nikkei Asia. But that, he added, is after a period “of almost 20 years of nothing.”

Among the companies moving into or expanding in the region are top German chipmaker Infineon, which is building a EUR 5 billion euro (USD 5.3 billion) plant, and key automotive supplier Robert Bosch, which is spending EUR 3 billion (USD 3.2 billion) to expand its plants there and elsewhere in Germany.

New arrivals include Taiwan Semiconductor Manufacturing Company (TSMC). The world’s largest contract chipmaker plans to start construction later this year on a EUR 10 billion (USD 10.6 billion) chip facility—its first in Europe—right next to Bosch’s factory, with investments from NXP, Infineon, and Bosch. Globalfoundries is also mulling a multibillion-EUR expansion in the city.

Fraunhofer, Europe’s top application-oriented research institute, is expanding its R&D facilities for next-generation advanced chip packaging technologies and computing in memory solutions in Dresden.

This rush to expand is raising hopes that Europe can become a major player in advanced semiconductors, vital components that power everything from smartphones to fighter jets. But local industry veterans like Drews question whether the sudden surge in investment and recent government support will pay off.

The European Union’s share of global chip production capacity is about 8%, according to the European Semiconductor Industry Association, down from over 10% in the 1990s. In advanced chips, Europe in the 1990s led the world, accounting for 44% of output, according to data from the Boston Consulting Group. That dominance is long gone, with Asia now accounting for more than 90% of cutting-edge production.

Attempts have been made to reboot the EU chip industry. In 2013, then-European Commission vice president Neelie Kroes spearheaded an industrial strategy for electronics that aimed at doubling the bloc’s semiconductor production. The initiative achieved only limited success, due to the relatively small 10 billion euro incentive package and a lack of public awareness.

Now, following the major supply chain disruptions of the Covid-19 era, the EU is trying again. In 2022, it followed the US and Japan in unveiling incentives for the chip industry, including a EUR 43 billion (USD 45.8 billion) package to boost local production from 10% to 20% by 2030.

Rutger Wijburg, chief operations officer of top European chipmaker Infineon, told Nikkei Asia that this target is intended to “increase technological sovereignty and economic resilience.”

Chip industry veterans say there is a higher level of commitment this time.

“In 2013 there was no real commitment,” said Roland Giesen, managing director of Dresden-based Fabmatics. “But this fully changed in 2020 to 2022, in that next to the automotive industry, you see the chip industry as a key industry to make Europe successful.” Fabmatics is an automation solution provider that supplies global chipmakers. Its revenue doubled from 2021 to 2023, and the company is expanding in Dresden thanks to new investments.

Frank Boesenberg, managing director of Silicon Saxony, one of the bloc’s biggest chip industry associations, told Nikkei Asia that only in recent years have many industries and policymakers in Europe and Germany realized the importance and complexity of chip production.

He recalled, for example, how little understanding automakers seemed to have of chip production.

“During the chip shortage, the automotive guys called these German chipmakers and said, ‘Listen, I desperately need chips! Can you possibly start a night shift?”‘ he said. Such a request made little sense, as chip factories as a rule run 24 hours a day, seven days a week.

“In Taiwan and South Korea, semiconductor is the number one industry,” Boesenberg said. “In Germany, it’s just one other of many industries.”

But even the re-energized government policy and financial incentives might not be enough to kickstart the industry, particularly when compared with efforts by the US, Japan, and China.

Washington recently awarded USD 8.6 billion in grants and USD 11 billion in loans to American chipmaker Intel, along with USD 6.6 billion for TSMC and USD 6.4 billion for Samsung. The world’s top three chipmakers together have committed USD 200 billion to build plants in the US. A fourth company, American memory chipmaker Micron, received USD 6.1 billion to onshore advanced memory production for artificial intelligence computing.

Japan, meanwhile, has granted subsidies to TSMC, Samsung, and Micron equivalent to more than 40% of their planned investment in the country.

The EU has yet to finalize its subsidies, while individual member states needs to come up with public funds to match those incentives. The European Commission announced guidelines this year for chipmakers to apply for them, and Germany committed to matching some funding to energize the chip ecosystem. Most investment plans for chip production in the bloc are focused on more mature semiconductors. These are less advanced but suitable for automotive, industrial and some consumer electronics applications.

Martin Landgraf, a project coordinator with the Fraunhofer research institute, told Nikkei Asia that it is “no secret” that the amount of money the EU is offering for semiconductor development is minimal. “If you look at the US CHIPS Act and our high goal of what we want to recover in Germany and [Europe] to reach 20% of market share, [our support] does not match others.”

Success in chipmaking requires a long-term commitment, according to Leuh Fang, chairman of Vanguard International Semiconductor, a TSMC-affiliated chipmaker. “You need to invest a lot of money, and that commitment needs to be solid and last long,” he said. “If you invest for two to three years and find it burns a lot of money and can’t continue, then you don’t belong to this business.”

Financial support is only one prerequisite necessary for semiconductor manufacturing. Having enough talent and the markets are also critical, executives and government officials told Nikkei Asia.

According to Boesenberg of Silicon Saxony, the greater region of Dresden has about 30,000 professionals working in microelectronics, but with the new investment on board, the area would need nearly 27,000 professionals just for semiconductors by 2030. “More than 13,000 skilled people will have to move to Dresden to support the ecosystem in coming years,” Boesenberg said.

Recognizing that talent is crucial for expansion, TSMC launched a talent exchange program between National Taiwan University and three German universities, including Dresden University of Technology. In March, Germany sent 30 seed students to Taiwan for the program, which includes an internship at TSMC’s advanced plants in central Taiwan. The program is expected to grow significantly, potentially reaching 100 students or more, with additional universities also participating.

“We don’t have such a [big chip] industry like what you have in Taiwan, but it’s gaining popularity among students,” Jacob, a graduate school student from Poland who is majoring in physics and taking part in the exchange program, told Nikkei Asia.

Didier Scemama, head of EMEA IT hardware research at BofA Global Research, said chip manufacturing expertise cannot be gained overnight.

“I buy a cookbook from Joel Robuchon, the three Michelin star [chef], and I buy the exact same ingredients. The reality is my Boeuf Bourguignon is going to be nothing like the Boeuf Bourguignon of Joel Robuchon,” Scemama said. “The process recipe in semiconductors is the same thing. … You have so many knobs to turn, it’s so complicated to get all the things right.”

There are other labor-related issues, too.

“For Asian chipmakers and suppliers to invest and expand in Europe … the higher cost of course is one issue, but at the end of the day, people management, labor relations, and work culture differences are the biggest worries,” says Jerry Peng, director of electronics and green energy research center at Market Intelligence & Consulting Institute. “That’s something that many Asian and Taiwanese companies always have a second thought [about] when it comes to Europe.”

Then there is a fundamental question about the EU’s entire chip project: Is it realistic for the bloc to aim for a leading role in cutting-edge semiconductors?

EU industry chief Thierry Breton said Europe needs to move beyond older chip technology and develop its own advanced capabilities. The problem is that the bloc does not have the end markets for such semiconductors.

“It could be a mismatch of what the European Commission might want to achieve and what the semiconductor companies in Europe are willing to spend,” BofA’s Scemama said.

Lars Reger, CTO of NXP, agreed. “If you put a two-nanometer chip plant in Europe, you will need to load that with customers from Asia and from the US. It doesn’t make sense,” he said. “All the big [European] players, such as Siemens, ABB, Schneider, they need [energy]-efficient computing chips and analog chips.”

Drews—who has witnessed not only the birth of Europe’s largest chip hub but also cycles of stalled investment over the years—said he sees “optimism” in the bloc about the future of the industry. But progress, in his view, is “too little and too slow.”

“Europe was asleep for a long time. They have [only] woken up in the last few years,” he said. The policy push is “going in the right direction, but it does not have enough oomph behind it. … It’s still too slow and lacks [enough] public money.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


Auto loading next article...