Taiwan Semiconductor Manufacturing Company, along with three corporate allies, is to go ahead with a €10bn plant in Germany as the world’s largest contract chipmaker seeks to diversify globally in response to customer concerns over geopolitical tension.

The Taiwan-based group has teamed up with automotive supplier Bosch and chipmakers Infineon and NXP to build the factory in the eastern city of Dresden, a statement from the four companies said on Tuesday. TSMC’s board of directors approved an equity investment of up to €3.5bn in European Semiconductor Manufacturing Company GmbH.

The German government has offered TSMC half of the total — €5bn — in subsidies to support the project, according to a person familiar with the details. The economy ministry in Berlin said its support was in line with the criteria of the European Chips Act, adding that it had issued an exemption permit to allow construction to begin quickly.

Economy minister Robert Habeck, who has fought for subsidies to lure chipmakers, said the factory would be “a significant contribution to securing the supply of semiconductor chips to Germany and Europe”.

The move adds to Berlin’s strategy to become a leading European hub for chip manufacturing, backed by generous state support. The EU as a whole is, meanwhile, seeking to double its share of the global semiconductor market from 10 to 20 per cent by the end of the decade.

Tuesday’s announcement comes on the heels of a decision by Intel in June to build two wafer fabrication sites in eastern Germany in the single biggest instance of foreign direct investment in the country’s history. The chipmaker Infineon, meanwhile, broke ground on its chip factory in Dresden in May.

The joint venture unveiled on Tuesday, of which the Taiwanese company will own 70 per cent while its European partners will each hold one-tenth, aims to start construction in the second half of next year. Production was scheduled to start by the end of 2027, the companies said, adding that the final investment decision depended on the amount of funding from the German government.

“This investment in Dresden demonstrates TSMC’s commitment to serving our customers’ strategic capacity and technology needs,” said CC Wei, TSMC’s chief executive. “Europe is a highly promising place for semiconductor innovation, particularly in the automotive and industrial fields.”

The decision highlights TSMC’s strategic shift from almost exclusive reliance on its Taiwan manufacturing base to several regional production hubs, as governments and chip buyers from around the world fear the repercussions on semiconductor supplies should China attack Taiwan.

While TSMC reluctantly responded in 2019 to pressure from Washington to build a fabrication plant, or fab, in the US, management has pivoted to defending fab investments abroad as a move necessary to keep global customers from defecting to rivals such as Intel and Samsung.

The Dresden fab follows a $40bn investment in a new advanced chip complex in Arizona and a joint venture in Japan, where TSMC is building a plant for making specialty technology — a range of niche chips manufactured using more mature process technology and employed in applications ranging from factory robots to wearables. A second such plant is also being considered.

The German fab highlights the growing significance of the automotive sector for chip demand, driven by the rise of electric vehicles and autonomous driving applications. In the second quarter, automotive applications accounted for 8 per cent of TSMC’s revenue, up from 2 per cent three years ago. European customers asked the company to invest in local production as early as 2021, at the height of a global auto chip shortage, but TSMC took a long time to review the project.

The company decided in favour of the German investment, in a state dubbed Silicon Saxony for the number of semiconductor plants located there, despite serious concerns over a lack of qualified workers as well as shortfalls in materials, tools and services.

Mark Liu, TSMC chair, singled out Germany’s supply chain ecosystem and labour supply as “the two points we are most worried about” at the company’s annual general meeting in June.

“There are indeed some gaps there,” he said. “But the German government promises to build that up in a very short period of time.”

The company has run into similar problems in Arizona, where it has pushed back the target date for starting production by a year to 2025 because of a lack of skilled labour.

Source: www.ft.com