Can Germany live up to its chipmaking ambitions?

When European Union Commission President Ursula von der Leyen came to Dresden on August 20 for the groundbreaking ceremony of a new chipmaking factory she brought a gift of €5 billion ($5.58 billion) with her.

It wasn't actually a gift or even EU money. What she had done in the early morning hours was approve subsidies from the German government for the project.

It was the official go-ahead needed for a massive project, part of Germany's goal of building up its own chipmaking industry. German Chancellor Olaf Scholz, who was also at the groundbreaking, was glad to accept.

Up and running soon in Silicon Saxony

The new factory is expected to employ 2,000 people and be up and running by 2027. The project is a joint venture of ESMC (European Semiconductor Manufacturing Company) with partners Bosch, Infineon and NXP.

The impulse behind the deal is Taiwan-based TSMC, the biggest contract chipmaker in the world. This is the company's first foray in Europe.  

The new €10 billion factory will be built next to German engineering company Bosch and facilities of Germany's largest semiconductor manufacturer Infineon in what many call Silicon Saxony.

Silicon Saxony is a region encompassing a 100-kilometer (62-mile) radius around Dresden, the capital of the regional German state of Saxony. After some bumpy times, for the past 15 years the region has been on an upward trajectory.

Today, this high-tech cluster is home to 3,600 companies working in microelectronics, software or as suppliers to these businesses. These companies employ around 81,000 people, a third of which are women.

Continued growth puts the industry on track for 100,000 workers by 2030, says Frank Bösenberg, the managing director of an industry association also called Silicon Saxony. He calculates that it would then overtake the automotive sector to become the most important industry in Saxony.

In an interview with DW, Bösenberg described his job as a mix between a politician, economic developer, marketing expert and office manager. Besides focusing on Saxony, he coordinates with other semiconductor clusters in France, Belgium, the Netherlands, Sweden, Italy, Austria and the Czech Republic.

Build it and they will come?

Saxony has been a manufacturing hub since the 1980s. Partly because of this long history Silicon Saxony is now the biggest microelectronics cluster in Europe with the biggest choice of employers and the most partners or competitors. This ecosystem, which includes technical universities in Dresden and the town of Chemnitz nearby, has been able to support itself and grow. 

Building factories is one part of the equation. Having qualified people to run them is another and this is where Saxony and nearby Thuringia could run into problems.

The states, and eastern Germany more generally, have not always been kind to recent arrivals. For a place that is heavily dependent on foreign skilled workers, fears of intolerance could keep workers away. If these fears are backed by a more right-wing government things could get worse.

So far, Silicon Saxony companies have been able to meet the challenge of finding skilled workers. The worry that big new factories would hoover up workers from smaller companies has not been confirmed as more people from outside the region discovered the jobs on offer.

For Bösenberg, there are other problems that growth can bring like affordable housing, schools and public transportation. Infrastructure projects in Germany are notorious for taking a long time and running over budget. And in Saxony much of the planning is based on the region shrinking not growing.

Around Dresden, the current situation is "good to very good," said Bösenberg, but needs to keep up. More housing will soon be needed. It is already hard to find bigger apartments. One challenge is figuring out who will come to fill the jobs: singles or couples and how many children they will bring? These are all factors that change what will be needed.

Unfulfilled promises to build more

The new TSMC facility in Dresden went quickly from talks to groundbreaking. Projects elsewhere have not been so fast. Last year the government signed an agreement with Intel to help build two chipmaking sites in the eastern city of Magdeburg. Total investments could come to around €30 billion.

At the time, the chancellor called the company's plans the biggest direct foreign investment in German history. Construction was supposed to start this year, but not much has happened. In the meantime, the company announced the need to cut back its workforce and investments. Many around Magdeburg doubt anything will be built.

Wolfspeed, an American chipmaker, has also been trying to get a factory off the ground for a number of years in Saarland in western Germany. Groundbreaking for this facility, which would make chips for the car industry, was pushed from 2023 to 2025.

Moreover, Germany has to think bigger. The €10 billion TSMC factory is a nice addition to Silicon Saxony, but pales compared to the $65 billion (€58 billion) the company plans to invest in three new plants in Arizona in the US by 2030.

In August, the US Department of Commerce announced that in the last two years the CHIPS and Science Act had granted over $30 billion in funding for 23 projects — including 16 brand new semiconductor manufacturing facilities — in 15 US states.

Some observers question all these subsidies, especially when the investments support production and not research and development (R&D). TSCM and Intel, for example, will continue to keep R&D close to home, leaving Germany to be a production line for others.

Does branding chips 'Made in Germany' matter

Yet for many customers, when it comes to chips the "Made in Germany" label doesn't mean much, especially since no one really sees the chips.

"As a customer you do not care whether the chip comes from Dresden or from Hsinchu [in Taiwan]. The quality has to be correct," Frank Bösenberg told DW.

If Germany wants to become less dependent on others for their  semiconductors, they have to deliver top quality at a globally competitive price. Being made in Germany is just not enough. 

Bösenberg says the country is still in the chip race. Though he sees some room for improvement, he takes a wider view.

"Yes, we are Silicon Saxony. Yes, we are the biggest microelectronics cluster in Europe," he said. "But after all, Europe is the scale, the region, the level things should be considered on, because otherwise we will be too small." And no one wants to be small when it comes to chips.

Edited by: Uwe Hessler