The highly subsidized settlement of TSMC has given many hope for a further upturn in the chip industry in East Germany. But the bright forecasts could be too high.
Ten billion euros for a single location: That is a bold investment. With the promise that the German state will cover half of the huge sum, TSMC boss CC Wei today laid the foundation stone for the chip manufacturer's new factory in the north of Dresden – in the presence of political celebrities: EU Commission President Ursula von der Leyen and Chancellor Olaf Scholz were also present.
“The largest microchip manufacturer in the world is coming to our continent and joining forces with three European champions,” said von der Leyen at the event. The benefits will be felt far beyond Dresden and Saxony.
The European industry will benefit from more reliable supply chains and new products tailored to its needs. “In times of growing geopolitical tensions, TSMC will also benefit from geographical diversification to Europe,” stressed von der Leyen.
Chancellor Scholz found almost euphoric words: “We are thrilled that such an important player in the global semiconductor scene is now opening a location here.” Semiconductors are the fuel of the 21st century, which is economically shaped by two megatrends: comprehensive digitalization and the departure from fossil fuels.
The new factory in Dresden is intended to meet the semiconductor needs of the fast-growing European automotive and industrial sectors, said TSMC CEO Wei. “With this state-of-the-art production facility, we will bring TSMC's innovative manufacturing methods much closer to our European customers and partners.”
International Carrier consortium
In addition to the Taiwanese contract manufacturer, the German companies Bosch and Infineon and the Dutch NXP Group are also participating in the billion-dollar project, each with a ten percent stake. The joint venture is simply called “European Semiconductor Manufacturing Company” (ESMC).
The project is another milestone for the region around the Saxon state capital, whose name “Silicon Saxony” is much more than just a fancy slogan. As the company network of the same name calculates, every third chip produced in Europe now comes from Saxony.
Long-standing tradition
The technology location is proof of the fruits that can be borne by the targeted promotion of so-called industry “hubs” or “clusters”. One of the reasons why Europe's largest semiconductor network has developed here is the region's long industry tradition, which stretches back to the early years of the GDR.
Well-known chip manufacturers such as Infineon, Bosch, GlobalFoundries and X-FAB operate their factories here. In addition to the manufacturers, a large number of small and medium-sized companies have settled in the Free State, which primarily operate as suppliers and service providers. There are also research institutes that work with the companies to drive innovations in the field of microelectronics. The “Silicon Saxony” business association, founded in 2000, now has more than 550 members from all areas of microelectronics and information and communications technology.
Significant Network effects
The cluster's economic impact is significant. The companies benefit from a mutual transfer of knowledge and technology, and the region has so far successfully attracted skilled workers, who in turn accelerate the transfer of knowledge. In Saxony alone, its members employ over 20,000 people and generate annual sales of over four billion euros, according to “Silicon Saxony”. In addition, there are further growth effects for other sectors. In the semiconductor sector in particular, protecting Germany from global supply problems also plays a role.
The association expects a good 100,000 jobs in the region's microelectronics and software industry by 2030. In view of the 6,000 jobs expected to be created by TSMC's move, this estimate could prove to be “too conservative,” said association head Frank Bösenberg to the “Handelsblatt.”
Billions in aid justified?
While such network effects are hardly disputed in principle, the question remains whether they justify state subsidies of this magnitude. The billion-dollar subsidies not only raise high expectations, but are also criticized by competitors in individual cases, such as in the case of TSMC by US competitor GlobalFoundries.
Well-known economists such as ifo head Clemens Fuest also question them in principle and point out that the funds must first be earned and could perhaps be used more sensibly elsewhere. Particularly controversial is the planned 30 billion project by the former chip market leader Intel in Magdeburg, which the public sector wants to finance one third of – i.e. with around ten billion euros of taxpayers' money.
The EU Commission approved the subsidies for TSMC just in time for the groundbreaking ceremony. The construction and operation of the plant will strengthen Europe's security of supply, resilience and digital sovereignty in the field of semiconductor technologies, the Commission explained. The plant will also make a contribution to the digital and green transition.
Forecasts for cyclical industries difficult
But the forecasts for the future of “Silicon Saxony” could also be too optimistic. On the one hand, the Free State must succeed in permanently resolving the already significant shortage of skilled workers in the region, which leads to fierce competition for qualified employees.
On the other hand, history shows that the semiconductor industry in particular is a cyclical sector, meaning that its success depends heavily on the global economy. In particular, it is unclear how long the surge in demand triggered by the AI boom, which is also visibly reflected in European semiconductor sales, will last.
