The world’s largest chip manufacturer, TSMC, is currently constructing a facility in the German state of Saxony. The federal government is making considerable financial investments in this endeavor. What are its goals for the factory?
Luca Wolpers / t-online
Currently, there is little to see of the upcoming project in Saxony. However, rapid developments are expected in the coming months in “Silicon Saxony,” a term used by the Free State to describe its microelectronics and semiconductor industry around Dresden, modeled after Silicon Valley in California. By 2027, Taiwanese company TSMC, along with three partners, plans to produce chips primarily for the automotive industry in the northern part of Dresden.
The world’s largest contract manufacturer of silicon microelectronics is coming to Europe. A symbolic groundbreaking ceremony took place this Tuesday, attended by German Chancellor Olaf Scholz, Saxony Prime Minister Michael Kretschmer (CDU), and EU Commission President Ursula von der Leyen.
The heart of the European chip industry beats in Dresden, said Chancellor Scholz at the groundbreaking ceremony for a €10bn TSMC, Bosch, Infineon & NXP semiconductor plant in Dresden.
EU Commission President von der Leyen and Minister-President of Saxony Kretschmer also attended. pic.twitter.com/vGgzgh4QEP
— German Embassy London (@GermanEmbassy) August 20, 2024
Scholz stated: “If we want this production to take place in Europe – where it is not necessarily the cheapest – then we have to make it financially viable.” He added that the “largest microchip manufacturer in the world is coming to our continent and collaborating with three European leaders,” as noted by EU Commission President von der Leyen.
Here are the key details regarding the new chip factory:
What is planned in Dresden?
TSMC plans to build a new semiconductor factory in collaboration with Bosch, Infineon, and NXP Semiconductor. Each of the partners, which already have their own production facilities in Dresden, will hold ten percent of the joint venture European Semiconductor Manufacturing Company (ESMC), while TSMC will hold 70 percent.
What is the cost of the factory in Dresden?
The investment at the Dresden site is expected to be around ten billion euros, with about half covered by subsidies from the German government.
The East German mega-project is currently being built here.Bild: www.imago-images.de
What is the timeline?
Initially, an excavation pit will be dug. ESMC President Christian Koitzsch indicated that the plant will have a footprint of 200 by 200 meters and a depth of ten meters. Approximately 500,000 cubic meters of excavated earth will be redistributed to the adjacent area. The building shell will be constructed thereafter, the clean room will be ready by 2027, and production will commence.
Prior to this, the TSMC facilities in Japan and Arizona were re-examined to draw insights for the Dresden plant. However, one challenge in Saxony is that the building does not need to be earthquake-proof.
What will the production focus on?
The company will utilize semiconductor materials like silicon to manufacture tiny microchips found in numerous everyday products such as cell phones, computers, and vehicles. Apple uses these for its iPhones, Sony implements them in cameras, while major automotive firms like Tesla and Volkswagen incorporate them into their cars.
The logo of TSMC.Bild: www.imago-images.de
Unlike the chips for high-performance smartphones, the semiconductors to be produced at the new facility in Dresden will not utilize the latest 3 or 4 nanometer processes but rather employ larger structure sizes. These conventional chips are prevalent in the automotive sector, and as connected vehicles and electric cars become more common, the industry’s demand for them is rapidly increasing.
Where will the skilled workforce for the new plant be sourced from?
ESMC is anticipated to create 2,000 jobs, with preparations already in place for the skilled workforce requirement. Recently, the first 30 students from universities in Saxony returned from Taiwan after studying there for six months and completing internships at TSMC. A dual vocational training program in microtechnology and mechatronics is set to commence next year. In January 2025, the company will participate in the “Karrierestart” career fair in Dresden. Specialists from Taiwan are also expected to assist in the operations in Dresden.
How are other industries responding to the establishment?
As is typical for large investments, there are expectations that this development will generate a ripple effect, benefiting various sectors of the economy. This applies not only to potential suppliers. Nonetheless, small and medium-sized enterprises and tradespeople in the region express concerns that employees might opt for better-paying jobs at ESMC and subsequently leave. Recently, a letter of intent was signed between chambers of commerce and businesses addressing this concern. The goal is to ensure that the search for skilled workers does not harm small and medium-sized enterprises; instead, all parties aim to collaborate.
Skilled workers from Taiwan are also expected to work in Dresden.Bild: www.imago-images.de
What developments are planned in the surrounding area?
The city of Dresden has been involved in the planning from the outset. To accommodate the significant water requirements of the chip industry in the northern part of the city, the state capital plans to develop a new water system, including a riverside waterworks on the Elbe. The total investment for this initiative is projected to exceed 320 million euros.
The local public transport company aims to extend a tram line northward to facilitate convenient access for employees to the new factory. The housing sector is also being engaged, as accommodations for 2,000 employees must be found in the city of Dresden. Enhanced cooperation has been initiated with 16 neighboring communities.
What other significant industrial projects are underway in Germany?
In Magdeburg, Intel intends to construct several chip factories. This will amount to around 30 billion euros, representing the largest investment in Germany since World War II. The federal government plans to contribute 9.9 billion euros in aid, although EU approval is still awaited. Despite a cost-cutting initiative, Intel has reaffirmed its commitment to its plans, according to the Magdeburg state government.
In Ensdorf, Saarland, the US company Wolfspeed is preparing to build a factory for silicon carbide semiconductors at an investment of about 2.7 billion euros, though delays have occurred. Wolfspeed has indicated that construction is not anticipated to commence until 2025. In Munich, Apple is investing billions to expand its chip design center.
Another expansion is occurring in Dresden, not far from the TSMC project: the construction of a new factory by the German manufacturer Infineon is progressing well. CEO Jochen Hanebeck confirmed that machines will arrive in September 2025, with production set to begin the following year. Infineon is planning to invest five billion euros in this expansion and create over 1,000 new jobs.
Why is the German government supporting such developments?
The Dresden facility is part of the semiconductor strategy of the federal government and the EU. Supply chain bottlenecks during the Corona pandemic highlighted the dependency of Germany and Europe on chip supplies, particularly from Asia, with the automotive industry being severely impacted as several manufacturers had to halt production.
Chancellor Olaf Scholz (SPD) believes that Germany could emerge as a leading semiconductor production hub in Europe, which is vital for the resilience of global production structures, as he explained last year during the announcement of the Dresden project. State aid is commonly provided for such initiatives.
German Chancellor Olaf Scholz.Bild: keystone
Scholz emphasized that the expansion of the semiconductor sector in Germany and Europe is not aimed at decoupling from markets like China, but rather at reducing risks and dependencies.
What are the criticisms?
There is ongoing criticism regarding the federal government providing taxpayer money to assist companies. Reint E. Gropp, President of the Leibniz Institute for Economic Research in Halle, argues that assistance should not be given to profitable companies, considering it a waste of resources.
Furthermore, other economists question whether the German economy will achieve the anticipated boost from these funds. In response to the criticism at the groundbreaking ceremony, Chancellor Scholz remarked that semiconductors will be essential in the future for a climate-friendly industry.
Additionally, there are doubts about whether the new chip factory will effectively generate jobs. Intel has recently announced plans to cut 15,000 jobs, while Infineon intends to eliminate 1,400 positions.
Sources:
The World’s Largest Chip Manufacturer TSMC Builds a Semiconductor Factory in Germany’s Saxony
TSMC, the leading global semiconductor manufacturer, is setting the stage for a new era in chip production by investing heavily in a semiconductor factory located in Saxony, Germany. With plans to begin production in 2027, TSMC aims to cater to the automotive industry in collaboration with local partners. This monumental project is not just a significant development for TSMC but also for the European semiconductor landscape.
What is Planned in Dresden?
At the heart of the project is a partnership involving TSMC and three industry giants: Bosch, Infineon, and NXP Semiconductor. Together, they will form the European Semiconductor Manufacturing Company (ESMC), with TSMC holding a 70% stake in the joint venture. The new factory will focus on producing silicon microchips, essential components for various electronic devices.
Financial Commitment and Government Support
The investment in the Dresden facility is substantial, estimated at around €10 billion (approximately $11 billion). The German federal government demonstrates its commitment to fostering technological advancements by covering around half of the costs through subsidies. This financial backing highlights the strategic importance of semiconductor production in Europe.
Timeline for Construction and Production
Construction is set to proceed rapidly. Initially, excavation will begin to create a foundation measuring 200 by 200 meters and extending 10 meters deep. The total amount of excavated soil will reach approximately 500,000 cubic meters. By 2027, once the clean room is operational, TSMC plans to commence the production of microchips.
Chip Production Focus
The chips produced in Dresden will not utilize the latest 3 or 4 nanometer manufacturing processes commonly used in high-performance electronics but will instead focus on larger structure widths that cater specifically to the automotive sector. Given the rise of connected vehicles and electric cars, the demand for these conventional chips is expected to surge.
Workforce Development and Recruitment
To facilitate the operation of the new factory, approximately 2,000 jobs are projected to be created. An emphasis on skilled worker development is paramount, with programs already in place for students at Saxon universities. Initiatives include internships and collaborative training programs in microtechnology and mechatronics engineering.
Efforts are underway to attract talent both locally and internationally, with plans for skilled specialists from Taiwan to support the operations in Dresden. This strategic approach to workforce development is essential for ensuring a steady pool of talent as TSMC begins its operations in Europe.
Regional Economic Impact
The establishment of TSMC’s semiconductor manufacturing facility is anticipated to have far-reaching effects on the local economy. Economists expect that not only will local suppliers benefit, but the entire region may experience a general economic uplift due to increased activity in the tech sector.
Community Concerns and Collaborations
While the influx of jobs presents an opportunity for the local community, there are concerns about potential wage competition. Local businesses have expressed apprehension that skilled employees may gravitate toward TSMC for better compensation. Deliberate agreements and collaborations between companies are currently in development to mitigate talent poaching and ensure stability among local businesses.
Investment in Infrastructure
In tandem with TSMC’s construction, the city of Dresden is planning significant infrastructure enhancements. A new water management system is intended to accommodate the factory’s substantial water needs, with total projected investments exceeding €320 million. Additionally, public transport infrastructure, including extensions to tram lines, is being upgraded to support future commuter needs.
Global Context and Comparison to Other Projects
TSMC’s investment in Dresden is not an isolated event in Germany’s semiconductor landscape. Intel is pursuing a €30 billion investment plan for multiple chip factories in Magdeburg. Meanwhile, Wolfspeed aims to establish a silicon carbide factory in Ensdorf, highlighting a broader trend of escalating investments in semiconductor production across Europe.
Strategic Importance for Europe
Germany’s push for semiconductor manufacturing reflects a greater European strategy aimed at reducing dependence on Asian chip suppliers. The COVID-19 pandemic has underscored vulnerabilities in supply chains, prompting European leaders to enhance local production capabilities. This aligns with Chancellor Olaf Scholz’s vision of establishing Germany as a leading hub for semiconductor innovation in Europe.
Overcoming Criticism and Challenges
Despite the significant investments, skepticism remains about the viability of these projects. Critics argue that public funds should not be used to bolster already successful companies. There are also concerns regarding job security in light of impending layoffs in the broader tech sector. However, Scholz maintains that the demand for semiconductor technology is set to grow profoundly, warranting the initial investments.
Conclusion: A New Chapter for Semiconductor Production in Europe
As TSMC lays the groundwork for its Dresden facility, the broader implications for Europe’s semiconductor industry are profound. The collaboration between TSMC and European partners promises to bridge the gap in microchip production, invigorating local economies while addressing logistical challenges exposed during recent global shortages.
