TSMC to enter ‘Silicon Saxony’ with €10B chip plant

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In a pivot toward Europe, Taiwanese chipmaker TSMC decided yesterday to invest in a €10bn chip factory in Germany. 

With Taiwan under mounting pressure from Beijing to submit to mainland China authority, politicians — and customers — are increasingly concerned about disruptions to semiconductor supply chains. As such, the Taiwanese producer is looking to geographically diversify its dominant computer chip industry. 

Taiwan Semiconductor Manufacturing Corporation, or TSMC, produces most of the chips in Taiwan. In turn, the East Asian island makes over 60% of the world’s semiconductors, and 90% of the most advanced ones.  

On the other side of the equation, the EU, and Germany in particular, have been looking to bolster domestic chipmaking capabilities. This means massive state subsidies, of which TSMC has now decided to take advantage. 

The Taiwan-based group is joining forces with Bosch, as well as fellow chipmakers Infineon and NXP, to build the fab in Dresden in the east of Germany. The TSMC-majority-owned (70%) subsidiary will be known as the European Semiconductor Manufacturing Company (ESMC). 

Yesterday, TSMC’s board approved an equity investment of €3.5bn into the plant. Construction will commence in the second half of 2024, and production is scheduled for the end of 2027. However, the chips produced in Dresden will not be the latest technology. Rather, they will be of an older generation favoured by the automotive industry. 

The German government has agreed to front half of the total costs for the Dresden fab, i.e. €5bn, which the economy ministry says is in line with the European Chips Act. 

TSMC’s board also gave the go-ahead for a $4.5bn (€4.1bn) cash injection in wholly-owned US subsidiary TSMC Arizona, based in Phoenix. 

Following delays due to staff shortages, TSMC’s first Arizona plant, which will build 5 nanometer chips, is now scheduled to come online in 2025. A second fab that will produce 3 nanometer chips, currently the most advanced in production, is also in the works.

The $40bn project (€36.5bn) constitutes one of the largest foreign direct investments in US history. When considering that Intel’s €30bn plant in Magdeburg is also the largest foreign direct investment in the history of Germany, it is difficult to deny the implications of the chip industry for the global economy. 

Germany’s bid in the chip battle

Chips are tiny but fundamental building blocks of modern technology power everything from smartphones and computers to advanced medical equipment and military systems.

Access to semiconductors is essential to a country’s economy, as well as technological advancement and innovation. Indeed, computer chips have become among the most critical sectors of the global economy, and even rival the oil and gas industry in terms of geopolitical significance. 

If you follow the geopolitics of semiconductor manufacturing capabilities, you are probably aware by now that both the US and the EU are attempting to decouple, or at the very least derisk, from dependence on China. 

Germany is particularly aggressive in its attempt to attract chip makers, even transferring €20bn from a climate fund to win over both TSMC and Intel. Saxony, the German state where Dresden is located, has even been nicknamed Silicon Saxony, due to the number of chip fabs to be located there. 

Yet, with labour shortages mounting and continued issues with supply chains, there are concerns that Germany’s push for semiconductor independence could fall flat. However, the German government has assured TSMC it will conjure both enough skilled workers and materials. In any case, this is far from the last chapter in the global semiconductor saga.