Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Suppliers to Taiwan’s world-leading semiconductor manufacturing industry are plotting an entry into Europe as the construction of the first advanced chip factories on the continent in decades reshapes its supply chains.
“We are planning investments in Germany, and the European market is going to be ours,” said Vincent Liu, president and chief executive of LCY Group, a supplier of cleaning agents and solvents to Taiwan Semiconductor Manufacturing Co, the world’s largest contract chipmaker.
Three other Taiwanese chemicals suppliers to TSMC also said they were considering investments in Europe.
Their plans illustrate the structural changes triggered by government efforts around the world to reshore chip manufacturing and protect supply chains of critical technology from geopolitical tension and other disruptions.
Liu said European chipmakers’ manufacturing processes had become inefficient and their supply chains atrophied because of their reliance for many years on mature technology.
“Companies like Infineon are not using quality chemicals because their suppliers’ capacity is decades old,” he said. “They have no awareness of how much state of the art chemicals could help them raise their yield rates.”
Global chipmakers are scrambling to build up capacity in Europe, taking advantage of subsidies under the European Chips Act, which seeks to mobilise €43bn in investment for the industry and respond to similar state support in the US and China.
TSMC is planning to build a fabrication plant worth more than €10bn in Dresden, Germany, in partnership with European chipmakers Infineon and NXP and auto supplier Bosch. It is scheduled to start production in 2027.
Intel has committed to investing €30bn in two cutting-edge semiconductor fabs in Magdeburg, north-west of Dresden, and multinational contract chipmaker GlobalFoundries and European chip company STMicroelectronics are planning a €5.7bn fab in France.
But according to industry experts, Europe lacks the supply chain to support such dramatic increases in capacity.
“Europe was capacity-wise not growing for more than a decade,” said an executive at a European petrochemical company, adding that all chipmakers on the continent used mature technology with transistor gates 28 nanometres wide or older. The most advanced chips under production measure 10nm or smaller.
“The ecosystem and quality output of electronic grade chemical manufacturing assets is not geared at all to supplying advanced technology nodes such as those targeted by TSMC in Dresden or Intel in Magdeburg,” the person added.
TSMC chief executive Mark Liu in June said gaps in Europe’s chip supply ecosystem were one of the “things we are most worried about” but added the German government had promised to help address the problem.
GlobalFoundries said chip companies in Europe were concerned about ensuring the necessary supplies for manufacturing. “There’s a big push to have more bulk materials readily available,” the company said.
Sulphuric acid, which chipmakers need in huge quantities for cleaning and etching, has to be sourced from Asia because there is not enough available in Europe at the right quality, the person added, while isopropyl alcohol, needed for wafer cleaning during chip production, was often in short supply.
The technology in European fabs works with relatively low-grade IPA. Ineos, Europe’s leading supplier, has two IPA factories in the German towns of Herne and Moers, which were built in 1959 and 1936, respectively.
After decades of concentration of cutting-edge chipmaking in east Asia, LCY and Japan’s Tokuyama are the only companies making the chemical for the most advanced semiconductors. Tokuyama said it might consider Europe as a potential market in 10 to 20 years, but Asia was its only focus in the near term.
LCY’s Liu visited Germany two weeks ago to lobby for government support for chip supply chain companies. He said Infineon and other European chipmakers had in the past lacked incentives to modernise manufacturing processes because they generated most of their profits from designing chips.
TSMC, on the other hand, specialises in producing chips from others’ designs and was therefore singularly focused on reducing defect rates to raise profitability.
“Once TSMC goes in, they will show them, and they will start understanding what big a difference this makes,” Liu said.
The European chemicals executive said the loss of advanced supply capabilities applied to almost all materials and chemicals in the semiconductor value chain for Europe.
“Europe today is a net importing region for key electronic grade chemicals. Changing this to become competitive is a long-lasting and expensive challenge requiring a lot of capital expenditure in Europe.”
Infineon did not respond to a question about the effect of TSMC’s Dresden fab on its manufacturing efficiency or supply chain. Ineos said it was active in the development of ultra-high-purity chemicals and “has continued to reinvest in its production facilities at Herne and Moers to serve current and future customer demands in the semiconductor industry both domestically and globally”.
Additional reporting by Guy Chazan in Berlin and Kana Inagaki in Tokyo