Munich It’s a sensation that hardly anyone takes notice of: Infineon is just ramping up a new plant for testing and packaging chips in Hungary. Such a backend factory is a rarity in Europe. The corporations usually fly the semiconductors to the Far East for labour-intensive further processing.
Experts say that the new building on the outskirts of Budapest should not remain an isolated case. Otherwise the race to catch up with semiconductors called for by the EU is doomed to failure. It’s not enough to concentrate on so-called front-end factories worth billions, like the ones Intel wants to set up in Magdeburg, emphasizes Peter Fintl, semiconductor expert at the consulting firm Capgemini. “Europe needs to take care of the entire value chain, from raw materials and tools to design and manufacture.”
In the spring, Commission President Ursula von der Leyen announced that Europe’s share of global chip production would be doubled to 20 percent by the end of the decade. Since then, some companies have announced that they will set up new front-end production facilities. They are the core of semiconductor production.
The mostly spatially separate further processing, however, has so far been neglected. Intel promised earlier this year to build a backend factory in Italy. However, the contracts have not yet been signed.
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Testing and packaging are becoming increasingly important, emphasizes Alan Priestley, chip analyst at market researcher Gartner. Even when designing the chips, the developers would consider how they could set themselves apart from the competition.
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The height of the corona pandemic showed how dependent Europe is on Asia for the backend. Europe’s leading chip companies lacked the urgently needed supplies because factories in Malaysia could only work at half capacity for weeks due to the local lockdowns. The Southeast Asian country accounts for 13 percent of global backend production.
China is pushing into the business
But that’s not all: China is gaining more and more market share in the testing and packaging of the chips. According to Accenture experts, the country is successfully relying on takeovers to grow in the business – and also to become more independent from the West.
But buyers are increasingly doubting China’s delivery reliability. Because of the countless lockdowns in the People’s Republic, many orders are delayed. In addition, the risk of a political conflict between the West and China is increasing.
The Federation of German Industries (BDI) has been pushing for months to strengthen the European chip industry, with moderate success. At the beginning of the week, BDI President Siegfried Russwurm reiterated his demand: “The production and development of semiconductors requires technological expertise and in-house production capacities as well as more investment in research and development.” According to Russwurm, machine learning, artificial intelligence and the applications based on them can be only be implemented with powerful semiconductors.
Power semiconductors from Infineon: The components are packaged in the new plant in Hungary.
(Photo: dpa)
The federal government has definitely recognized this and is trying to attract foreign investors from all areas of the chip industry. So far, however, only Intel has decided to build in Germany from the international corporations.
Max Milbredt from the federal foreign trade agency Germany Trade & Invest says: “In addition to the front end, the new chip materials gallium nitride and silicon carbide are particularly interesting for Germany. But we are also looking for chip designers and investments in backend manufacturing, i.e. the packaging and testing of semiconductors.”
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Time is of the essence, and many chip manufacturers have been struggling with the flood of orders for a good two years now. Car chips in particular are scarce.
In view of the ongoing bottlenecks, more and more customers are interested in where the components come from, says Sascha Bütterling from the supply chain specialist Supplyframe. “Buyers are currently declaring this to be a quality feature.” The increasing geopolitical tensions would also worry customers. The closer the production gets to the customers, the better – that’s the calculation.
However, Europe is comparatively expensive. The consequences of the Ukraine war have recently exacerbated the situation. According to Bütterling, energy costs are a decisive factor when choosing a location for chip producers. Many countries in Asia are cheaper. The currently uncertain supply of electricity and gas also makes investments in Europe unattractive. But that’s not all: “Personnel costs are still significantly lower in Asia,” says the expert.
Alexander Gorski, head of backend production at Infineon, counters that wages in Hungary are lower than in China, the manager asserts. Almost a third of the company’s own backend capacities are maintained by Germany’s largest semiconductor manufacturer in Europe.
However: Infineon only tests and packs around 60 percent of its chips itself. Suppliers, including from Taiwan and the USA, take care of the rest. This means that the proportion of third-party manufacturers in the backend is significantly higher than that in the frontend, which is not least due to the labour-intensive and therefore expensive processes.
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However, Infineon does not operate by far the largest backend locations in Europe, but rather in Malaysia and Indonesia. The Munich-based company is expanding rapidly there, and nothing will change that any time soon: it’s about achieving economies of scale, according to Gorski.
Infineon lacks workers in Hungary
Nevertheless, Infineon is looking around the world for new backend locations. In Europe this is rather difficult because there is a lack of workers. Gorski is currently bringing 35 employees from the factory in Indonesia to Hungary to ensure production there. If the people feel comfortable, they should be followed by other specialists from Asia.
Perhaps the solution for Europe is not to build new factories within the EU; but to open up a region for the chip industry that is both cheap and close to the customers. Advisor Fintl: “Europe should consider including Africa more. Morocco and Tunisia could become attractive locations for the chip industry.”
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