TSMC settlement in Dresden: The next billion-dollar subsidy is tempting

TSMC settlement in Dresden: The next billion-dollar subsidy is tempting


It is again an investment of billions by a chip group in Germany, which comes about through a subsidy – the Taiwanese chip group TSMC wants to build a new semiconductor factory in Dresden, as the group announced today. And as with Intel in Magdeburg or Wolfspeed in Saarland, the new factory in Dresden will also be subsidized by taxpayers with several billion. Specifically, it should be about five billion euros, which the group could receive under the new rules for European chip promotion.

The settlement in Saxony and the renewed financial support of a chip company from the German state fits in with the new China strategy of the traffic light government. At the beginning of July, the federal government presented the paper, which, among other things, provides for “de-risking” and strengthening Germany as a location – for example by building its own semiconductor factories in Germany.

Market share of almost 60 percent

It is hardly surprising that the so-called de-risking – i.e. the minimization of dangerous dependencies – is given special attention to TSMC. The company makes tiny microchips from semiconductor materials such as silicon, which are used in numerous everyday products such as cell phones, computers and cars. Apple uses them for its iPhones, for example, Sony integrates them into cameras, and large car companies such as Tesla and VW install them in their vehicles.

The Taiwanese group, which is one of the largest tech companies in the world according to the Forbes ranking, had a market share of almost 60 percent in the fourth quarter of 2022 and supplies more than 500 customers worldwide. The group has developed almost 300 different production processes for the more than 12,000 different products that TSMC manufactures. There is not much competition for the group, whose market share is more than twice as large as that of number two, the South Korean group Samsung. If you want to install microchips in your products, you can’t get past TSMC.

Production so far mainly in Taiwan

The chips are mainly manufactured in Taiwan. With a few exceptions, TSMC has all of its factories on the Asian island, as well as almost all of its research centers – apart from a few partnerships that the group operates with American universities, among others. From there, the semiconductors, which have become indispensable for many people’s everyday lives, are shipped all over the world, for example to Apple, the largest customer.

This proximity of the manufacturing facilities to mainland China is a concern in the West given the ongoing tensions in the Taiwan Strait, the strait between mainland China and the island of Taiwan. China’s communist leadership under President Xi Jinping regards democratic Taiwan as part of the People’s Republic and has threatened to conquer it. Should the conflict escalate militarily, it could bring global supply chains and with them all production using microchips to a standstill.

New factories in USA, Japan and Germany

A horror scenario when you consider that microchips are now installed in almost all electronic devices. That is why the group has already announced that it will expand its production globally. TSMC is currently building a chip factory on the Japanese main island of Kyushu and has announced a second factory in the US state of Arizona. If the group implements the project in the USA, it could benefit from the legislation of the Biden government and receive a billion-dollar subsidy for the construction of the factory.

And now a new production facility in Germany: The Taiwan Semiconductor Manufacturing Company, which was founded in 1987, wants to invest around four billion euros in a subsidiary that is to build the plant in Germany. A total of around ten billion euros are to be invested in the factory, which is to be operated jointly with Bosch, Infineon and NXP. TSMC will own 70 percent of the factory, which is also operated by the Taiwanese, while all other partners involved will each own 10 percent of the joint venture.

Sales have recently fallen significantly

For TSMC, the numerous subsidies come at a critical point in business development. Although the group is likely to benefit in the long term from the trend towards artificial intelligence in voice systems such as ChatGPT, TSMC has recently suffered from a weakening economy: the sales of the world’s largest contract chip manufacturer fell in the second quarter by 13.7 percent compared to the previous year to 15.68 billion dollars. “Our business in the second quarter was impacted by general global economic conditions, which dampened end-market demand and led to ongoing customer inventory adjustments,” said Wendell Huang, TSMC’s chief financial officer.

The weakening Chinese economy also plays a decisive role here. Because the recovery of the Chinese economy after the corona pandemic is weaker than expected, the result is that TSMC customers have full warehouses and the manufacturer can sell less.


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