Germany wants to end Europe’s semiconductor dependence on Asia. Does it depend on the challenge?

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solo26 May 2023Last Update : 4 months ago
Germany wants to end Europe’s semiconductor dependence on Asia. Does it depend on the challenge?

Germany wants to end Europe’s semiconductor dependence on Asia. Does it depend on the challenge?

From use in electric cars and smartphones to wind turbines and even missiles, electronic chips – or semiconductors – are the “oil of the 21st century” components on which “everything else depends”.

These were the words of Germany’s Chancellor, Olaf Scholz, at the opening of a new factory built by German semiconductor maker Infineon earlier this month.

On a visit to Seoul late last week, he again spoke to his Korean counterparts about semiconductors, calling on South Korea to invest in Europe to strengthen supply chains.

The EU’s stated aim is to reach 20 percent of the world market by 2030, double its share today. Achieving this target would require a four-fold increase in production on the Old Continent.

That is the aim of the European “CHIPS Act”, which EU lawmakers scrapped in April, which plans to mobilize €43 billion in public and private investment.

Germany, being Europe’s largest economy, is leading the movement to reduce dependence on Asia.

In addition to Infineon’s new factory in Dresden – a €5 billion project – US conglomerates Intel and Wolfspeed have announced major investments in Germany in recent months.

It would be a major victory for Germany if it wins the first European factory of Taiwanese conglomerate TSMC – one of the world’s biggest chip makers.

Discussions have been ongoing for more than a year for a plant in the Dresden region, Europe’s leading microelectronics hub, which is already known as “Silicon Saxony”. According to TSMC, a decision is expected in August at the earliest.

An unattainable goal?

But some 200 km away in the Magdeburg region, the excitement generated last year by the announcement of a €17 billion investment by US giant Intel has given way to skepticism.

The construction of the factory, which was to start in the first half of 2023, has not started.

“Many things have changed” in a year the group acknowledged in a statement to AFP, which suffered a record loss in the first quarter of the year due to a sharp decline in sales of personal computers and smartphones.

In addition to “geopolitical challenges,” the group said, “disruptions to the global economy have increased costs for everything from building materials to energy.”

The German Ministry of Economy acknowledged, “Additional public support is envisaged to fill the cost gap of the planned project, which has grown significantly”.

‘No self-reliance’

This subsidy spree is not going down well with many Germans.

Clemens Fuest, one of the country’s most respected economists, worried, “We’re spending a lot of money to slightly increase security of supply.”

While public aid to Dresden and Magdeburg will be in the billions, Germany and Europe will largely depend on chips produced outside the continent, and “you have to imagine what could have been done with that money,” explained IFO president Mr. Fuest. Economic Institute, in an interview with the German broadcaster ARD.

If dependence can be reduced, there will be “no self-sufficiency for any country or region” in semiconductors, Infineon CEO Jochen Hanebeck also warned this month.

In contrast, some professionals believe that the aid should be on an even larger scale.

“The funds announced under the Chips Act are a good start, but they are still insufficient by world standards,” Frank Bosenberg, director of Silicon Saxony, an organization that promotes semiconductors in the Dresden region, told AFP.

Taiwan (where 90 percent of the world’s most advanced chips are produced), South Korea, and increasingly China, currently dominate the market.

Europe also faces competition from the US, which is spending a lot of money to boost domestic production.

Another major challenge for Germany will be finding enough workers.

The chip industry is currently short of 62,000 skilled workers in various occupations, according to a study by the German Economic Institute in December.

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