Federal government paves the way for Infineon to invest billions in Dresden

Berlin/Munich Nothing stands in the way of Infineon’s billion-euro investment in Dresden: the chip manufacturer’s supervisory board and board of directors have decided to start construction in the second half of the year. This emerges from a statement from the group on Thursday. At around five billion euros, this is the largest single investment in the history of the Munich Dax group.

The basis for the decision is the approval of the Federal Ministry of Economics that Infineon can start the project early. Minister Robert Habeck’s (Greens) officials had approved the early start of the project in the first week of February, according to Handelsblatt information.

Thanks to the approval, the company can start work in Dresden even before the European Commission has approved the subsidies requested by Infineon. The group is hoping for extensive grants from the EU’s Chips Act.

With the blessing from Berlin, Infineon will soon be bringing out the excavators. Series production is scheduled to start in the factory in three years. Infineon wants to achieve annual sales of five billion euros with the plant at full capacity. 1000 new jobs are to be created.

The company wants to increase its production of semiconductors in Dresden, which are used, for example, in energy-efficient chargers, small engine controls for cars or in data centers. “Together we are speeding up the expansion of our production,” said Infineon CEO Jochen Hanebeck.

Positive signals from Brussels for funding

When Infineon presented its plans for Dresden last November, the company had made the construction dependent on adequate subsidies. The application for funds under the Chips Act is still under review by the EU Commission. But there are positive signals from Brussels, according to government circles. Infineon insisted on being able to start work in Dresden.

Infineon factory

The semiconductor manufacturer wants to build a new factory in Dresden.

(Photo: Bloomberg)

The news from Dresden is the next step in Germany’s state-backed race to catch up in the future market of chips. It’s been slow so far. While half a dozen new plants are already under construction in the USA to remedy the chip shortage, little is happening in Europe.

The EU’s Chips Act is intended to be the central instrument for counteracting this. Commission President Ursula von der Leyen wants the proposed legislation to double Europe’s share of global chip production by 2030, to 20 percent.

The Chips Act is to include 43 billion euros from national budgets and private funds and is accompanied by a relaxation of legal restrictions on state aid for semiconductor manufacturers.

>> Read here: There is a huge risk in the Infineon balance sheet

How much Infineon will get is still open. Hanebeck recently spoke of “appropriate funding”. In Asia and America new factories are subsidized with large sums. Grants of 40 percent of the investments are common. At Infineon, that would be two billion euros.

Jochen Hanebeck

The Infineon boss is selling more and more chips and convincing investors with brilliant numbers.

(Photo: dpa)

The draft of the Chips Act has existed since February 2022, but has not yet been decided. Since then, various chip manufacturers have been waiting for the agreement and are basing their location decisions on it, such as the US group Intel for its planned 17 billion euro plants in Magdeburg.

The federal government had provisionally promised 6.8 billion euros. However, Intel is now approaching almost ten billion euros and is negotiating an increase with the Ministry of Economic Affairs. According to government circles, whether those responsible will comply with the request depends on how the funds can be released.

Investors are skeptical about Infineon’s plans

Because the federal government wants to comply with the debt brake, there was no additional leeway. The Ministry of Economics does not want to promise Intel any additional funds if investments for the green transformation would have to be canceled, it said.

Other chip catch-up projects are already further ahead. At the beginning of February, the US chip manufacturer Wolfspeed announced that it would build a new semiconductor factory in Saarland together with the automotive supplier ZF. The partners expect government funding of more than half a billion euros.

Chancellor Olaf Scholz (SPD) and Economics Minister Habeck came to present the plans. Scholz said in Ensdorf: “We have to create conditions for how we can get better in the EU and make the aid more flexible”. It is now about mobilizing billions.

Infineon’s decision in favor of Dresden is therefore good news for Scholz and Habeck. Investors, however, do not only rate the project positively. “As long as business is booming, such investments can be managed,” says Markus Golinski, portfolio manager of the fund company Union Investment, according to a previously distributed speech for the virtual general meeting this Thursday.

However, the manager warns: “In the event of a downturn, the group has to shoulder high fixed costs.” The question therefore arises as to how the group can arm itself against the danger of overcapacities and collapsing margins in the event of a downturn, according to Golinski.

Is Infineon building up too much capacity?

CEO Hanebeck dismissed concerns about overcapacity in November. “We are very confident that we can fill the factories,” he had said. Like Infineon, the most important competitors are also building large new plants: STMicroelectronics is investing heavily in Italy and France, Wolfspeed in America and Rohm in Japan.

Infineon is doing excellent at the moment. Hanebeck recently increased the forecast at the beginning of February despite the gloomier economic outlook: The manager now promises an operating margin of 25 percent for the current financial year, one percentage point more than before.

“Even in a weaker macroeconomic environment, significant parts of our business are proving to be robust,” explained Hanebeck. According to Hanebeck, the energy transition and the expansion of electromobility in particular are causing high demand for Germany’s largest chip manufacturer. On the other hand, things are going worse for the semiconductors for smartphones, PCs and data centers.

In the first quarter, sales shot up by a quarter to almost four billion euros. Profit climbed 59 percent to 728 million euros and the operating margin was 28 percent.

Investors are happy. Since the beginning of the year, the share price has climbed a good 27 percent. The increase in the Dax is around eleven percent.

More: Intel considers almost ten billion euros in subsidies necessary

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