TSMC alone isn't enough for German state Saxony's chip ambition: why Taiwanese suppliers are needed

Misha Lu, Taipei, DIGITIMES Asia 0


Following the TSMC decision in August 2023 to set up a fab in Dresden, located in the German state of Saxony, the state has been beefing up efforts to attract more Taiwanese suppliers, especially TSMC suppliers, to set foot in the region and expand the local industrial cluster known as Silicon Saxony. However, Taiwanese suppliers remain cautious amid concerns about labor shortage, worker unions, operation costs, and subsidies.

On February 20, the German Trade Office Taipei hosted a seminar regarding Saxony's investment environment and support resources. Speakers of the event include Thomas Kralinski, State Secretary of Saxony in charge of the Ministry of Economics, Labour and Transportation, Steffen Rietzschel, the Director of Dresden's Office for Economic Development, Thomas Horn, CEO of Saxony Trade & Invest, and Frank Nemeth, Senior Project Manager of TÜV SÜD, a technical inspection association based in Germany that tests and certifies facilities for hazard prevention.

Saxony's strong automotive industry underpins its semiconductor ambition: the auto sector accounted for 25.2% of the state's industrial output in 2022, while microelectronics accounted for 14%. Infineon, a major automotive chip supplier, can trace its presence there back to 1994 when it was still Siemens Microelectronics Center Dresden. In May 2023, Infineon made an additional investment of EUR5 billion in Dresden. The city also hosted AMD's first fab outside of the USA back in 1996 until GlobalFoundries (GF) took over in 2009. In September 2023, GF announced an additional investment of around EUR8 billion to double its capacity in Dresden by 2030.

As a part of TSMC's trajectory of overseas expansions that see its footprints reaching the US and Japan, fab construction in Dresden will start in the second half of 2024 with production targeted to begin by the end of 2027.

"A gap of understanding in semiconductor manufacturing"

Talking to DIGITIMES Asia at the event, a Taiwanese company experienced in fab construction and expansion projects of TSMC and other foundries customers indicated that the higher operation costs in Germany are a major concern. Subsidy opportunities are thus a key determinant. In addition, as the supplier is primarily responsible for the planning and implementation of the energy management system within fabs, it doesn't rule out competition from local German companies which are also experienced in servicing fabs. The source added that further details remain unknown as TSMC has not revealed the detailed planning of its Dresden fab.

In contrast, a Taiwan-based provider of high-purity electronic chemicals for advanced semiconductors and optoelectronics indicated that while costs aren't a concern for chemicals suppliers, the gap in work ethics and culture between Germany and Taiwan could be an issue, citing the one-year delay faced by TSMC's Arizona site. The supplier further noted a potential gap in the understanding of semiconductor manufacturing and fab construction: though many local suppliers often cite experiences in supplying the likes of Intel and GlobalFoundries, the intricacies required by TSMC's cutting-edge fabs are of a different level.

Michael Chang, the CEO of First-Elite Enterprise, a TSMC supplier specialized in distributing the engineering equipment for pipeline systems and pipe valves, highlighted the labor issues based on its current experiences in Japan. Despite the tendency to hire more local labor forces, labor shortage issues nevertheless surface during construction peaks.

In this context, the CEO inquired the German government representatives if there were plans in place to support the introduction of foreign labor, to which the Saxony officials answered that the state government is generally not responsible for the labor management inside companies, though German construction companies often introduce highly skilled labors from other parts of Europe to address shortage issues. The officials also added a note of optimism, citing Bosch's Dresden fab which started operating six months earlier than expected in 2021.

To address the persistent challenge of labor and talent shortage, the officials see the ongoing program that brings German students to train at TSMC as a good start. Notably, the officials see major differences between the environments in the USA and Germany, pointing to the latter's special vocational system, and highly educated workforces, in addition to the attractiveness of living in Germany. "As far as I know, the semiconductor industry in Dresden hasn't had problems in hiring people," said one official. "It's the smaller companies that are a bit skeptical."

Readying the infrastructure and policies for a global hub

In preparation for an expanding semiconductor cluster, Rietzschel showcased the infrastructure planning underway in Dresden, especially when it comes to water supply, wastewater treatment, and the supply of electricity and gas. It is forecasted that industrial water demand in the region will double in the next 10 to 20 years, and the government is investing a total of EUR316 million to plan for new river waterworks and secure both industrial and drinking water. As the officials put it, a completely new water system is being set up just for the microelectronics industry, and the local government has been in close talks with the companies, giving it a clear picture of industrial water demand up to 2030.

With Intel setting up manufacturing operations in Magdeburg, Saxony-Anhalt, forming another industrial cluster, the Saxony state officials see a relationship that is both collaborative and competitive, but remain confident towards Saxony's semiconductor industrial heritage that can be traced back to the 1980s. Regarding the neighboring countries that also have microelectronics ambitions owing to their roles in the regional automotive supply chain, especially Poland where Intel plans a packaging facility, the officials also see cooperations and competitions side by side. On the one hand, TSMC's presence has catapulted the region from a European industrial hub to a global hub, and Saxony's government has launched a European Semiconductor Regions Alliance with the European Union in 2023. On the other hand, even though Germany has a pretty active industrial policy, neighboring countries are strengthening theirs as well.

Following the constitutional crisis in late 2023 that saw subsidies for fab construction in Germany almost jeopardized, the Saxony state officials stressed that the subsidies are "safe and secure." Given the German federal government's reliance on "special funds" that are off-budget, the officials emphasized that Germany's Constitutional Court "only has rules on the specific way these funds have been organized." Regarding the previously soaring energy costs triggered by the war in Ukraine, the officials observed that prices are slowly going down to a level lower than before the war. Renewable energy, meanwhile, is deemed the best way to reduce energy prices in the long term.