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Frankfurt, Germany, (UrduPoint / Pakistan Point News – 24th May, 2023 ) :Germany is trying to lead a European drive to boost chip production with a series of mega investments, but the effort faces challenges ranging from high energy prices to subsidy rows and labor shortages.
As the pandemic sent demand for semiconductors soaring and global supply chains rumbling, Western countries that had long depended on Asia to produce their chips cheaply were in for a nasty shock when they faced sudden shortages.
The European Union swung into action, rolling out a plan to double the bloc’s share of global chip production to 20 percent by 2030 and mobilize billions of euros in investment.
Industrial powerhouse Germany – whose carmakers were among companies hit hard by the shortage – hopes to lead the European renaissance, with major investments announced recently, including from Intel, Infineon, Bosch and Wolfspeed.
Taiwanese tech giant TSMC, one of the world’s leading chip companies, is also considering building its first European factory in the eastern city of Dresden.
At the groundbreaking this month for a new Infineon chip factory in Dresden, Chancellor Olaf Scholz said semiconductors are “often called the petroleum of the 21st century.”
Chips, used to power everything from smartphones to fighter jets, were the one component “on which almost everything else depends,” he added.
Infineon plans to invest around five billion euros ($5.4 billion) in the facility. It is due to open in 2026 and create up to 1,000 jobs in Dresden, the state capital of Saxony, which already has a dense network of chip companies.
However, not all projects have worked so smoothly.
Intel announced with great fanfare last March plans to build a massive chip factory in the city of Magdeburg, with an initial investment of 17 billion euros, the centerpiece of the American company’s European investment drive.
But after inflation soared following Russia’s invasion of Ukraine, the project has been delayed, with construction – originally set to start in the first half of 2023 – not yet underway.
The company is reportedly pushing for higher government subsidies to cover the impact of higher costs.
When asked about the reports, Intel said “a lot has changed” since the project was announced.
“Geopolitical challenges have increased, demand for semiconductor products has declined and disruptions in the global economy have resulted in increased costs, from building materials to energy,” the company said in a statement.
Germany’s economy minister said the government is currently discussing measures to “close the cost gap for the planned project, which has increased significantly in recent months”.
For Germany’s chip ecosystem, another big challenge is finding enough workers.
In occupations particularly important to the chip industry, there is currently a shortage of 62,000 skilled workers, according to a study by the German Economic Institute in December.
Europe’s ‘Chips Act’, adopted by the European Parliament and EU member states last month, aims to mobilize more than €43 billion in public and private investment.
In addition to Germany, investments have been announced elsewhere in the bloc, including a new factory in France built by Franco-Italian chipmaker STMicroelectronics and US-based GlobalFoundries.
The continent has a lot of lost ground to make up — its share of global chip-making capacity fell from 44 percent in 1990 to nine percent in 2020, according to a study by the US-based Semiconductor Industry Association and the Boston Consulting Group.
Europe also faces competition from the United States, which is shelling out large sums to promote domestic production, while Japan and South Korea have pledged to spend billions developing production.
However, some fear that spending billions of euros in public money on chip production is misguided, given that Europe is likely to remain heavily dependent on semiconductors produced elsewhere.
“If we enter a subsidy race, then we pay a lot of money and are not necessarily safer,” said Clemens Fuest, president of Germany’s Ifo institute, recently on the ARD TV channel.
And industry players believe the semiconductor supply chain — which involves many different companies providing different services — is destined to remain globalized.
“All major economies are trying to strengthen the semiconductor industry in their territories,” Infineon CEO Jochen Hanebeck told reporters on an earnings call this month.
Even if dependencies can be dialed back, there will be “no self-sufficiency for any countries or regions,” he added.