Germany to invest €5bn in new semiconductor foundry

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The funds will be used by the newly formed European Semiconductor Manufacturing Company (ESMC) to set up a new facility in Dresden

This week, the European Commission has given the greenlight to a German plan aiming to use €5 billion to build a new semiconductor plant in Dresden.

The plant will be built and run by ESMC, a joint venture being set up by Taiwan Semiconductor Manufacturing Company (TSMC), Bosch, Infineon, and NXP.

TSMC, based in Taiwan, is the largest semiconductor company in the world, and has been expanding its operations in both Europe and the US in respond to surging demand and geopolitical tensions between the US and China. Bosch and Infineon are also natural partners in the enterprise, with both already operating their semiconductor facilities in Saxony.

ESMC will operate as an open foundry, allowing any company to place orders to chip production. Special provisions for chip production will also be made for European SMEs and universities, ensuring that the plant will support European businesses and R&D efforts.

In explaining its decision to greenlight the investment, the Commission explained that the new facility will be the “first-of-a-kind”, filling a technological niche not currently served by the existing semiconductor ecosystem.

“This new centre qualifies under the European Chips Act as a first-of-a-kind facility. It will manufacture products that are not present or planned in any other facility across Europe. That means this facility is also entitled to national financial support,” said European Commission president Ursula von der Leyen.

“ESMC will be the first open foundry that will produce silicon wafers with 28/22nm and 16/12nm technology nodes, using FinFET technology with logic, mixed-signal, radio frequency and embedded non-volatile memory technology processes,” explained the Commission in its more detailed assessment. “These specific technologies differentiate it from other existing capacity and complement the production capacities needed by European customers.”

The Commission added that it expects the development have wider positive effects for the European chip supply chain, making it less reliant on the US and China.

It is worth noting here that the chips being produced by ESMC will not be the most advanced available on the market – TSMC, for example, is already producing 3nm chips for use in smartphones, data centres, and other high performance computing applications. But while ESMC’s 28/22nm and 16/12nm technologies may be less advanced, they are far more widely utilised in automotive and industrial applications, both of which mainstays of the German economy.

ESMC is expected to be operational at full capacity by 2029, at which point it will be producing 480,000 chips annually, primarily for automotive and industrial applications.

In recent years, semiconductors have recently become a major technological battleground on the global stage, with China, Europe, and the US all racing to develop their domestic capabilities and reduce reliance on foreign powers.

In the US, the CHIPS Act has set aside $52 billion in subsidies for the semiconductor industry, which has spurred numerous companies to plan new fabrication plants on US soil, including Intel, Samsung, and TSMC.

While China’s subsidy programmes remain largely opaque, estimates suggest they are even larger than the US’s, potentially totalling around $142 billion. The latest batch of funding was announced back in May, with the government creating a state-backed investment fund of $47.5 billion to invest in the industry.

The scale of these investments from the US and China has left Europe scrabbling for semiconductor relevance between the two superpowers. The European Chips Act is set to mobilise €43 billion in funding until 2030 to support European projects. Combined with private investments, the Act has already generated investments of €115 billion, according to von der Leyen.

Can Germany become the lynchpin of Europe’s semiconductor strategy? Join the discussion at this year’s Connected Germany event live from Munich

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