Taipei, Tokyo Germany will probably have to be patient when it comes to choosing the location for the new European plant of the Taiwanese chip giant TSMC. Taiwanese media are reporting that the largest contract manufacturer of semiconductors could set up its first European plant in Dresden.
But the spokesman for TSMC, Michael Kramer, is closed on the subject. We respond to the wishes of the customers, he says. “Part of the value that we offer is geographical flexibility.” He does not even want to confirm the visit of German Research Minister Stark-Watzinger, which according to Taiwanese government officials went well. Because a few points have not yet been clarified for TSMC – and the European plant would only be profitable under certain conditions.
Taiwanese experts therefore currently consider a public announcement of the new plant to be unlikely. Semiconductor analyst at Isaiah Research Lucy Chen says, “TSMC will not announce a decision this year, but will likely wait until next year.” Joanne Chiao of technology analyst Trendforce says, “I think they’re still in the early stages of talks.” She even imagines TSMC waiting until 2025.
According to the experts, the talks will focus on the level of subsidies and the participation of potential partners. According to the Taiwanese industry newspaper “DigiTimes”, the automotive supplier Bosch is being discussed as a joint venture partner for the European plant.
Bosch already has a new chip factory in Dresden plus expansion areas directly at the airport. “We generally do not comment on market speculation,” said a spokesman. “We basically welcome the interest of all chip manufacturers in creating new capacities in Germany.” It shows that Germany is fundamentally an attractive chip location.
But the use for TSMC is high, the outcome uncertain. The German auto industry is pushing for TSMC, but if the subsidies are not high enough, it’s not worth building the factory,” says analyst Chen, explaining the investor’s point of view. Production costs abroad are significantly higher than in Taiwan.
High production costs scare TSMC and its investors
The chipmaker expects operating costs for its $40 billion factory in the US state of Arizona to be 50 percent higher than in its best factories in Taiwan. TSMC founder Morris Chang even considers this assumption to be optimistic. “Maybe the cost is twice as much,” he said at a panel discussion in Taipei in March.
Chang anticipates significantly higher operating costs for the new US plant.
(Photo: Bloomberg)
Other chip companies also have this problem and therefore haggle hard with governments. Competitor Intel and the German government have been gambling for a long time about the size of the subsidies and the size of the factory in Magdeburg. TSMC is negotiating subsidies in the US while the group is already building its factory, says Trendforce analyst Chiao.
On this point, too, TSMC is officially keeping a low profile, because secrecy is a virtue of the Taiwanese. At the headquarters in Hsinchu, one of the largest chip clusters in the world, employees are not even allowed to bring their own smartphones into the office. The company is only now making a small concession: A notice in the elevator indicates that smartwatches will be permitted in the future, but that audio recordings will remain prohibited under threat of punishment.
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But there’s another compelling reason for TSMC’s silence on the European plant: investors. Trendforce analyst Chiao says the chip economy is currently poor and weighing on chipmakers’ balance sheets. “I therefore do not think that investors would welcome the announcement of new factories at this point in time,” says the expert.
According to analyst estimates, Samsung’s chip division made high losses in the first quarter of 2023 because demand for memory chips plummeted. Operating profit fell by 96 percent compared to the same quarter last year. TSMC is doing better with its chips for smartphones and other high-tech devices: sales in the first quarter were only five percent below the previous year’s level, the profit margin fell only slightly to just over 40 percent. However, the chip manufacturer fell short of expectations.
In addition, the outlook is unclear. TSMC assumes that the so-called foundry business, the contract manufacturing of chips, will shrink by four percent this year. The Taiwanese are expecting a recovery in the second half of the year in this important business area. However, Trendforce expects only moderate growth. The will of the group to expand abroad is, however, beyond question.
TSMC is in the third wave of globalization
TSMC is in the third wave of internationalization. In 1992, the company established a semiconductor factory in the USA, which, however, had to struggle with major problems for a long time. The dream of a US factory has turned into a nightmare, TSMC founder Chang said at a celebration at the new US plant in Arizona in December.
>> Read here: A year after the Intel announcement: Europe is still lagging behind when it comes to chips
Plants in China were added around the turn of the millennium. Now, the rapid growth of the chip industry is forcing Taiwanese to consider overseas factories, even without pressure from their major customers. Because on the island with only 23 million inhabitants, the workforce is becoming scarce. However, the Taiwanese pay close attention to which technologies and with whom they go abroad.
Germany also wants that: Taiwan’s chip manufacturer TSMC is building a factory in the USA.
(Photo: Bloomberg)
In the US, it is primarily the attraction of major customer Apple, which uses the smallest chips from Taiwan for its mobile devices. TSMC has therefore agreed not only to manufacture chips with 5-nanometer structures in Arizona, as originally planned, but also the smaller 3-nanometer chips. The Japanese model is more suitable for a plant in Germany. There, the Taiwanese are building a factory for relatively large chips for the Japanese electronics and automotive industries. The group is not only supported by high subsidies. Two main customers, the electronics and entertainment group Sony and the largest Toyota supplier Denso, are involved as investors.
>> Read here: How Japan secured TSMC early
The Japanese bring not only money, but also their own know-how. Sony builds image sensors itself, right next to the emerging TSMC factory. The Japanese are also interesting for the Taiwanese in terms of technology. “Sony is very good at three-dimensional packaging of semiconductors,” says expert Chiao. “They can exchange ideas there.”
Denso, in turn, is the fifth largest producer of chips for the automotive industry. TSMC is also considering building a second factory in Japan. In addition, the chip manufacturer establishes research centers with Japanese plant manufacturers and material suppliers for the semiconductor industry. The lesson from this: Germany will also have to deliver more than just great European demand.
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