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Covid-19 Crisis Drives Global Silicon Chip Demand

The global Covid-19 pandemic has led to an accelerated digitalization of daily life. Germany has proposed a European initiative to meet increased demand for semiconductors.

Digital life the new normal

The global coronavirus pandemic has led to a sustained and accelerated digitalization of all aspects of daily life. Working from home, remote learning and video conferencing have all become commonplaces in the post-Covid 19 world. These are all things that cannot be used without the proper digital infrastructure and equipment. Demand for semiconductors is at an all-time high, with global chip shortages the result of increased competition between industry and a resurgent consumer electronics sector.

Global chip shortage being felt across industry sectors  

Coronavirus containment measures including lockdowns around the world led to a slowdown in chip delivery as factories closed. However, the global chip shortage has not been alleviated by a reopening of the factories and a return to supply chain normality – with consumer electronics demand surging in response to changing consumer digital habits. 

This development has had a far-reaching effect on the auto industry, with chip shortages leading to car manufacturers slashing their production output in 2020. Auto manufacturers, who reduced semiconductor orders in response to falling car sales, now find themselves at the back of the semiconductor queue as consumer electronics giants jostle amongst themselves for chip supplies. Part delays that could last until 2022 have already affected Apple’s product roll-out (the iPhone 12 launch was delayed by two months last year), with Samsung too postponing the launch of its high-end smartphone (and this despite being the world’s second-largest producer of chips). 

Consolidated chip industry production to blame for current crisis

Although chips are being produced in as plentiful supply as before, the number of self-producing semiconductor companies has fallen, with many chipmakers having long switched to fabless models where actual manufacturing is outsourced to other companies. The current situation being one not so much of the chips being down, rather that production capacities are unable to meet the unforeseen spike in demand from the consumer electronics sector. 

Germany calls for chip industry investment to overcome dependence 

The semiconductor industry in Germany and Europe stands on the cusp of a significant wave of investment. Keen not to repeat a situation that saw its auto industry, for example, fall victim to chip supply bottlenecks, Germany has announced ambitious investment plans for the local production of semiconductors – a 2025 timeline has been agreed for Europe to develop its own leading-edge processor chips. 

Europe and Germany’s willingness to take on a bigger role in chip production is helping attract more and larger investment projects, as the continent seeks to establish security of supply and technological sovereignty into the future.

Alongside France and 17 other EU countries, Germany wants the chip industry to invest up to EUR 50 billion in semiconductor production to overcome a historical dependence on the USA and Asia. Germany and France have initiated similar projects in other future technology areas including battery cell production, cloud computing and artificial intelligence to lessen European dependence on the USA and China. 

Chip makers welcome IPCEI initiative

In proposing a joint “Important Project of Common European Interest” (IPCEI) to support semiconductor manufacturing, German Economy Minister Peter Altmaier has also called for the industry to invest in strategic areas, with EU member countries to provide between 20 to 40 percent in state subsidies.

In 2018, the European Commission approved the first IPCEI in the microelectronics sector, making up to EUR 1.75 billion in funding available through to 2024. Chip makers including Infineon Technologies have welcomed Altmaier’s intervention and the promise of increased state aid, calling on the European Commission and member countries to act quickly to implement the project.  

Chip giants investing in Germany

This political will, together with the possibility of IPCEI funding, is also being reflected in increased industry investment in Germany. Infineon recently announced plans to invest up to EUR 2.4 billion at its Dresden site over the coming years. The company has submitted proposals to the Federal Ministry for Economic Affairs and Energy as part of the microelectronics IPCEI, with the scale of the fourth factory module investment dependent on government subsidy commitments.

US chip manufacturer Globalfoundries has likewise announced plans to more than double capacity at its Dresden site, increasing production from 400,000 wafers to more than one million wafers annually – representing an investment of around EUR 1 billion according to industry commentators. Bosch is also putting the finishing touches to its EUR 1 billion production facility in Dresden. The project, first announced in 2018, will see car chips and sensors manufactured at the Saxony site, creating 700 new jobs in the region.


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