Europe’s new 1.6 billion euro chip factory only needs 10 workers in the factory

In the Alpine town of Villach, Austria, industrial engineer Andreas Wittmann studied his latest project: the brand new EU chip factory.

“Twenty years ago, it was not in our mental horizon to build a [semiconductor plant] in Europe ”, he declared, a few days before the official opening of the facility of 1.6 billion euros Friday. But “the increase in automation has diminished the advantage of Asia.”

The head of Europe’s largest chipmaker, Germany’s Infineon, did not have to insist.

The 60,000 square meter facility he designed – roughly the size of eight football fields – was abuzz with robots delivering silicon wafers via an overhead rail system, their LED lights blinking reassuringly. in red and green. Unlike an “old” facility nearby which has around 140 employees in the plant, the new plant requires around 10.

This reduction in personnel costs was one of the many reasons Infineon decided to expand the scenic site in 2018. The factory specializes in power semiconductors, primarily for cars, which contain dozens of these chips to take care of everything from power windows to navigation. systems.

An existing facility in the German city of Dresden – which supplies Volkswagen, among others – was already jam-packed, and with automakers increasingly focused on electric vehicles, many of which require even more power chips, the dossier investment was simple.

But the opening of the plant, which manufactures semiconductors on modern 300mm-thick silicon wafers, also coincides with a chronic shortage of chip supply that has devastated the automotive industry, spinning the assembly lines idling and causing the production of millions of cars to be canceled. .

As a result, the President of the European Commission, Ursula von der Leyen, announced her intention to draft a new “Chip Law”, in order to “jointly create a European state-of-the-art chip ecosystem, including the production “.

Infineon said its Villach site will help reduce bottlenecks for its major customers, many of whom are located nearby. “Our message to customers is that we can deliver,” Managing Director Reinhard Ploss told a press conference on Friday, even though there is at least a four-month lead time to produce power chips.

“They will not be free,” he added, as the cost of supplies rose during the crisis. “We think the prices will go up a lot in the summer. “

Although Infineon received grants for the Austrian plant, which, according to Ploss, “helped cushion and offset global distortions,” he is not among those who believe that supply constraints and security of supply will necessarily be solved by installing more factories in Europe.

The biggest chip customers in general, smartphone and PC makers, weren’t based in Europe, he told the FT this year, and they would continue to lead the queue for global supply, regardless of factory location.

Villach engineers added that it would take at least three more years for a new factory to be built if a decision was made today. “Semiconductor factories are more or less the Champions League for industrial building,” Wittmann said.

Worse, the rest of the industry was “18 months to a year behind in regular investments,” said Jalal Bagherli, managing director of Dialog Semiconductor, a European chip competitor which has just been acquired by the group. Japanese Renesas, which also supplies car manufacturers. .

Dialog relies on external contractors to manufacture its chips, but Bagherli said some of the third parties were not interested in increasing capacity when demand for consumer electronics led to a rush for chips during the pandemic.

“When we asked them, ‘Are you investing?’ they said, “Well, this is all temporary. It will only last three months, I am not going to invest another 10 billion dollars and build a [semiconductor factory] just because someone is working from home ”.

It also remains to be seen whether current levels of demand will be sustained. “Because it is capital intensive, you only spend money when you are sure you have demand,” said Thomas Reisinger, board member of Infineon in Austria.

“If you don’t get your components, you tend to overorder,” said Holger Schmidt, analyst at German bank Metzler, “and even though semiconductor companies deduct these double orders, you can never be sure. [that the orders are true to demand]”.

On Friday, Infineon – one of the few European companies to design and manufacture most of its chips in-house – was hailed by politicians, including Austrian Chancellor Sebastian Kurz and EU Representative Martin Selmayr, who said that ‘Infineon was a “key partner” in creating “a leading European chip ecosystem”.

But the labor intensive ‘back end’ process for semiconductors built in Villach – in which ‘labor costs play a significant role’ – will still take place in Malaysia, where Infineon has a finishing plant. .

It’s a trend that Reisinger, who has spent time in the Malaysian facility, doesn’t see reversing. “We have expertise, we have the engineers there, I think we will stay in Asia [for the back end],” he said.