Dresden to become semiconductor powerhouse: EU approves massive €5bn funding

The European Commission has endorsed a €5 billion state aid measure for the European Semiconductor Manufacturing Company (ESMC), facilitating the establishment of a major semiconductor manufacturing plant in Dresden, Germany. This significant investment marks a pivotal step in strengthening Europe’s semiconductor production capabilities and aligns with the strategic objectives of the European Chips Act.

The €5 billion German state aid will support ESMC—a joint venture between Taiwan Semiconductor Manufacturing Company (TSMC), Bosch, Infineon, and NXP—in the construction and operation of a state-of-the-art microchip production facility. Set to begin operations by 2029, the new plant will focus on producing high-performance chips using advanced 300mm silicon wafers with technology nodes of 28/22nm and 16/12nm. These chips will feature FinFET technology, which enhances performance while reducing power consumption, catering to the growing demand for automotive and industrial applications.

This facility will be Europe’s first open foundry, allowing various customers—including smaller companies and start-ups—to order specific chips. This model aims to bolster the European semiconductor ecosystem by providing crucial support to small and medium enterprises (SMEs) and fostering innovation. The plant’s open access will also benefit European universities by supporting research and development initiatives.

The European Commission’s approval comes after a thorough assessment under EU State aid rules, specifically Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU). The assessment concluded that the state aid will significantly advance Europe’s semiconductor capabilities, filling a crucial gap in the market. ESMC’s plant will be unique in Europe for its technological features and production capabilities, including the integration of logic, mixed-signal, radio frequency, and embedded non-volatile memory technologies.

The Commission highlighted that the state aid is necessary to attract the investment that would not have occurred without public support. The measure has a limited impact on competition and trade within the EU, as it is designed to ensure the resilience of Europe’s semiconductor supply chain. ESMC has also agreed to share any potential profits exceeding current expectations with Germany and commit to prioritizing orders for crisis-relevant products if needed.

This approval follows previous similar decisions, including measures for STMicroelectronics and GlobalFoundries in Italy and France, demonstrating the European Commission’s ongoing commitment to enhancing the continent’s semiconductor industry. The €5 billion investment is expected to create high-skilled jobs and drive forward Europe’s digital and green transitions.

The European Chips Act Communication, adopted on February 8, 2022, underscored the importance of investments in advanced semiconductor production facilities to safeguard the EU’s supply chain resilience. This decision marks the fourth approval under these principles, reinforcing Europe’s strategy to secure its position in the global semiconductor market and support technological advancements.