Germany’s chip ambitions facing myriad challenges

FRANKFURT

Germany is seeking to lead a European charge to boost chip production with a series of mega-investments but the drive faces challenges ranging from high energy prices to subsidy rows and worker shortages.

When the pandemic sent semiconductor demand surging and snarled global supply chains, Western nations long reliant on Asia to produce their chips cheaply got a nasty shock as they faced sudden shortages.    

The European Union is rolling out a plan to double the bloc’s share of global chip production to 20 percent by 2030.

Germany - whose carmakers were among firms hit hard by the shortages - is hoping to lead the European renaissance, with major investments announced in recent times, including from Intel, Infineon, Bosch and Wolfspeed.

Taiwanese tech giant TSMC is also considering to build its first European plant in Dresden.

Infineon plans to invest about five billion euros ($5.4 billion) in the plant, which is due to open in 2026 in Dresden.     

Not every project has been running so smoothly, however.

Intel announced with great fanfare in March last year plans to build a massive chip plant in Magdeburg, with initial investment of 17 billion euros.

But after inflation surged following Russia’s invasion of Ukraine, the project has been delayed, with construction - originally supposed to start in the first half of 2023 - not yet under way.     

The company is reportedly pushing for higher government subsidies to cover the impact of higher costs.For Germany’s chip ecosystem, another major challenge is finding enough workers.

In occupations that are particularly key for the chip industry, there is currently a shortage of 62,000 skilled workers.

Europe’s “Chips Act” aims to mobilise more than 43 billion euros in public and private investments.    

As well as Germany, investments have been announced elsewhere in the bloc, including a new plant in France built by French-Italian chipmaker STMicroelectronics and U.S.-based GlobalFoundries. 

The continent has much lost ground to make up - its share of global chip man facturing capacity fell from 44 percent in 1990 to nine percent in 2020.    

Europe also faces competition from the United States, while Japan and South Korea have vowed to spend billions on developing production.

However, some fear that spending billions of euros in public money on chip production is misguided, given Europe is likely to remain heavily dependent on semiconductors produced elsewhere.

“If we enter into a subsidy race, then we end up paying a lot of money and are not necessarily any safer,” Clemens Fuest, president of Germany’s Ifo institute, recently said on broadcaster ARD.