​On Tuesday, it was announced that the Taiwanese giant TSMC and three other very large companies will invest more than 10 billion euros in the production of microprocessors in Germany. The announcement is important from an economic point of view, but also symbolically. Some call Silicon Saxony a region where more and more high-tech factories will be built. “Chip, chip, cheers!” Bild Zeitung happily wrote on the front page.

Germany’s de-risking strategy costs billions of euros in subsidies

On Tuesday, it was announced that the Taiwanese giant, the number one in the production of microprocessors, TSMC, will start construction in Dresden (the capital of the state of Saxony, Saxony) of a new plant for the production of microcircuits together with Bosch, Infineon and NXP.

Economy Minister Robert Habeck said the investment would make a significant contribution to Germany’s semiconductor supply.

Bosch, Infineon and NXP each own 10% of the joint venture, while TSMC owns 70%. Around 2,000 jobs will be created, according to a report cited by Tagesschau.de.

The start of work is planned for the second half of 2024, and the start of production – for 2027.

Part of the investment costs will be covered by German taxpayers, as the agreement includes a package of state subsidies, as is customary in the world.

TSMC is building its first European plant

Taiwan Semiconductor Manufacturing Company (TSMC), founded in 1987, wants to invest about four billion euros in a subsidiary that will build a factory in Germany. For TSMC, the subsidies come at the right time, at a critical moment in its business.

TSMC expects the total investment to exceed ten billion euros. The final amount of the investment will be determined when the funding from Germany becomes known. According to Handelsblatt, the federal government has promised to support the construction of the factory with five billion euros. The final decision on funding must be made by the European Commission.

And this is not the only important subsidy of this kind. The federal government is backing billions in investment in semiconductor manufacturing. With a total investment in the new location of 30 billion euros, Intel (in Magdeburg) will receive almost 10 billion from the state.

In May, the German group Infineon began construction of a chip factory worth five billion euros in Dresden. Infineon is counting on €1 billion in government funding to expand production there. Bosch and the American company Globalfoundries also have large factories in Dresden.

A source of pride for German politicians

Federal Economy Minister Robert Habek (Greens) welcomed TSMC’s decision. The construction of the plant will make a significant contribution to the supply of semiconductor microcircuits to Germany and Europe, he explained. The investment decision shows that Germany is an attractive and competitive location, especially when it comes to key technologies such as microelectronics. However, additional efforts are needed, for example, work is underway to speed up approval processes and reduce red tape.

“Reliable domestic semiconductor production is critical to our global competitiveness because semiconductors keep our world running and make the transition to climate neutral possible in the first place,” says Habek.

“Without them, no computer, no car, no wind, and no solar system can produce energy.”

The project provides skilled jobs and added value in Germany. “At the same time, many companies in the value chain and in consumer industries, from large to mid-sized companies, are benefiting from investments of this scale.”

Saxony government welcomes “good news”

Following TSMC’s announcement, the Saxony government welcomed the “good news”. Together with Intel’s decision in favor of Magdeburg and Infineon’s expansion to Dresden, this deal will give a huge boost to regional development in Central Germany, explained Saxony’s Regional Development Minister Thomas Schmidt.

According to the CDU politician, the entire European economy will benefit. Europe should become less dependent on Asian suppliers.

It is important to reduce dependence on China

It is not at all surprising that special attention is paid to the so-called derisking – that is, the minimization of dangerous addictions. TSMC makes tiny microchips from semiconductor materials such as silicon that are used in many everyday products such as cell phones, computers and cars. Apple uses them for their iPhones, Sony integrates them into video cameras, for example, and major car companies like Tesla and VW install them in their cars.

The Taiwanese group, which is one of the world’s largest technology companies, according to Forbes, had a market share of nearly 60% in the fourth quarter of 2022 and supplies more than 500 customers worldwide.

The TSMC Group has developed nearly 300 different manufacturing processes for the more than 12,000 products it manufactures. There isn’t much competition for the group, whose market share is more than double that of the number two, South Korea’s Samsung Group.

The chips are mainly manufactured in Taiwan. With a few exceptions, TSMC has all of its factories on the Asian island, as well as almost all of its research centers — apart from a few partnerships, the group works with American universities. From there, the semiconductors, which have become indispensable in many people’s daily lives, are shipped around the world, for example to Apple, the largest customer.

The proximity of manufacturing facilities to mainland China is a cause for concern in the West, given ongoing tensions across the Taiwan Strait between mainland China and the island of Taiwan.

China’s communist leadership, led by President Xi Jinping, considers democratic Taiwan part of the People’s Republic of China and threatens not to rule out its conquest. If the conflict escalates into a military escalation, it could bring global supply chains to a standstill, and with them all manufacturing that uses microchips.

At the right moment

While the group is likely to benefit in the long term from the trend towards artificial intelligence in voice systems such as ChatGPT, TSMC has recently been hit by the economic downturn in several countries, with its second-quarter sales falling 13.7% from the previous quarter. year, up to 15.68 billion dollars.

“Our business in the second quarter was impacted by the overall global economic conditions, which reduced end-market demand and resulted in ongoing adjustments to customer inventories,” said Wendell Huang, TSMC’s chief financial officer, as quoted by German media.

The weakening of the Chinese economy also plays a decisive role. As China’s economic recovery from the Covid-19 pandemic is more timid than expected, as a result TSMC’s customers are sitting on full warehouses and the manufacturer may sell less.

Therefore, the future expansion of the company’s production in Europe and probably in the USA, especially due to generous government subsidies, can only counteract the current setback.