In the form of a technologically and regionally finely balanced joint venture with Infineon, Bosch and NXP, the world's leading chip contract manufacturer TSMC from Taiwan is establishing its first base in Germany.
The news that the Taiwan Semiconductor Manufacturing Company is locating a new fab in Dresden is quite something. TSMC is thus helping the already well-equipped high-tech region of Dresden and its successful 'Silicon Saxony' brand to become even more important - and the hesitant Berlin traffic light coalition to achieve a grandiose benefit in line with the motto 'Aufbau Ost'.
Technologically and regionally-politically finely balanced joint venture
Federal Chancellor Scholz and Saxony's Prime Minister Kretschmer welcomed the arrival of TSMC with great enthusiasm - whereas a number of economic experts are critical of the cost-benefit profile of the funding provided.
The Taiwanese want to contribute around €3.8 billion of their own funds and mobilize loans of a similar amount in order to raise the planned investment sum of at least €10 billion. The three junior partners will each contribute €500 million and will each be rewarded with a minority stake of 10%. According to a press release, ESMC wants to "offer advanced semiconductor manufacturing services", i.e. compete with Intel, Globalfoundries, STMicroelectronics, Infineon, Bosch and NXP. A 50-hectare industrial site near Dresden Airport is earmarked for the plant.
Competitors and partners of Infineon
This gives Infineon a competent neighbor in Dresden - both a competitor and a partner. Since this spring, Europe's largest chip manufacturer has been building a fab for power semiconductors there and plans to spend €5 billion on it. A state subsidy of €1 billion is being discussed. Two years ago, Bosch inaugurated a chip factory for 300 mm wafers, also near Dresden. Contract manufacturer Globalfoundries also has a large production facility here.
The new ESMC fab will be limited to TSMC's proven 28/22 nm planar CMOS and 16/12 nm FinFET process technologies, i.e. without the expensive EUV lithography required for process nodes at and below 7 nm. The fab will be designed for a monthly production capacity of 40,000 wafers and will create around 2,000 direct jobs in the high-tech sector. ESMC intends to start construction of the fab in the second half of 2024. Production is scheduled to start by the end of 2027. It is not yet known whether the backend, i.e. packaging and testing, will also be located in Dresden.
The German government has promised ESMC funding of €5 billion, i.e. almost half of the total investment sum - apparently in agreement with the EU regarding the rules of the European Chips Act. This brings many months of tough negotiations on both sides to a positive conclusion, particularly with regard to the level of subsidies and site conditions. The government in Taiwan is expected to give its (formal) approval; the People's Republic of China was not even asked.
Unprecedented involvement of the federal government
The agreement with TSMC follows a similarly structured agreement on the establishment of the leading US semiconductor manufacturer Intel on a greenfield site in Saxony-Anhalt near Magdeburg. In the case of Intel, the total investment is now expected to approach €30 billion after several discussions and revisions. The federal government intends to contribute an unprecedented €10 billion from the Climate and Transformation Fund (KTF).
Another example of current domestic chip production aimed at the automotive industry: the US company Wolfspeed wants to move to Germany and has chosen the structurally weak Saarland as the location for a new plant. The company is investing €2.75 billion in the production of silicon carbide chips, which are used in electric cars. Samsung is also among the candidates for a European chip factory. The US manufacturer Vishay, a supplier of passive components, is planning a plant in Itzehoe.
TSMC is of course also strategically diversifying into other geographical regions. In the USA, two fabs are in operation or under construction in Phoenix, Arizona. TSMC plans to invest a total of 40 billion dollars there. This is a multiple of the funds now being invested in Dresden. The first fab in Phoenix is already being equipped with the appropriate production equipment. It is set to produce chips with a structure size of 4 nanometers from 2024. Recently, however, there has been talk of delays until 2025 - reportedly due to impending staff shortages. The second fab, which is due to go into operation in 2026, is designed for 3 nm chips.
The federal government is contributing almost half of the total investment sum
The US government considers this location to be so important that US President Biden paid a visit to the TSMC site in Arizona in early December 2022 and once again took the opportunity to refer to the major national expenditure to promote the domestic high-tech sector in the form of the 'US Chips and Science Act'. The legislation enacted by the US Congress dedicates a huge sum of 280 billion dollars to this sector over ten years. Of this, $52.7 billion is intended to subsidize manufacturing and manufacturing-related R&D.
In Japan, in Kikuyo in Kumamoto Prefecture, TSMC has also been making intensive efforts since 2022 to build a chip factory, called Japan Advanced Semiconductor Manufacturing (JASM), for the production of more conventional structure sizes ('trailing edge') such as 28/22 nm and 16/12 nm. The investment amounts to 8.6 billion dollars. TSMC Japan is planning a production capacity of 55,000 wafers per month (300 mm wafer diameter equivalent). Sony and Denso are involved in a similar model to that in Dresden.
This illustrates the efforts that public authorities need to make, even in long-established high-tech regions, as a consequence of current developments in the deglobalization of a division of labour in the high-tech sector that has been established for decades. This is the only way they can keep pace with the competition between their industrial bases and secure sensitive supply chains.
