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IFX - Infineon Technologies AG News Story

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Last Trade - 11/05/21

Sector
Technology
Size
Large Cap
Market Cap £35.20bn
Enterprise Value £38.41bn
Revenue £8.58bn
Position in Universe 37th / 1053

ANALYSIS-Money no object as governments race to build chip arsenals

Fri 26th March, 2021 10:00am
By Douglas Busvine and Mathieu Rosemain
    March 26 (Reuters) - Governments around the world are
subsidizing the construction of semiconductor factories as a
chip shortage hobbles the auto and electronics industries and
highlights the world's singular dependence on Taiwan for vital
supplies.
    But beyond a consensus that something must be done to
diversify supplies, divisions over strategy are emerging along
with concerns that free-spending governments could spur
over-building in an industry that has historically been highly
cyclical. 
    Governments in the United States, the European Union and
Japan are contemplating spending tens of billions of dollars on
cutting-edge "fabs," or chip fabrication plants, as unease grows
that more than two-thirds of advanced computing chips are
manufactured in Taiwan. Earlier this week, a top U.S. military
commander told U.S. lawmakers that a Chinese takeover of the
island was the military's foremost concern in the Pacific.
    China has also offered a myriad of subsidies to the chip
industry as it tries to reduce its dependence on Western
technology, including $29 billion in 2019, helping feed
arguments that Western governments need to step up.
    The need for chip plants outside Asia has helped prompt
Taiwan Semiconductor Manufacturing Co (TSMC)  2330.TW  and
Samsung Electronics Co Ltd  005930.KS  - the only two chip
contract manufacturers capable of making the most advanced
computing chips - to draw up plans for new factories in the
United States and vie for what could be $30 billion or more in
U.S. subsidies.
    And Intel Corp  INTC.O , another of the "Big Three" which
also makes cutting edge chips, dramatically changed the playing
field on Tuesday when it disclosed plans to throw open its
factory doors to outside customers and build a new factory in
Europe in addition to two new ones in the United States.
    The net result could be a government-backed restructuring of
the semiconductor industry after decades in which American and
European chip firms outsourced their manufacturing to Taiwan and
Korea in the name of efficiency and delivering ever cheap
computing power to billions of people.
    "We're in a situation now where every country is going to
want to build their own fab," Dan Hutcheson, chief executive
officer of VLSI Research, told Reuters. "We're going from this
global interconnectedness to vertical silos everywhere."

    TENSIONS AND COMPLEXITIES
    In Japan, Canon Inc, Tokyo Electron Ltd and Screen
Semiconductor Electron will join a government funded 42 billion
yen ($385 million) program that will work with firms such as
TSMC to develop advanced 2-nanometer chips. Japan wants to
ensure it is able to build advanced semiconductors in the future
and aims to build a test line near Tokyo with help from TSMC.
    Even India, with little chip manufacturing infrastructure,
hopes to build on its strengths as a design center for global
chip firms and lure factories with new subsidy programs.
    Lawmakers in the United States, meanwhile, are preparing to
authorize $30 billion or more for chip investments via an 
existing Pentagon funding bill and a clutch of new measures
being championed by Senate Majority Leader Chuck Schumer.
    Local officials, as well as the companies, are already
scrambling for the bounty. Intel this week committed to Arizona,
which has a generous state tax-abatement program as well as an
established chip-making ecosystem, and analysts expect it to be
a big recipient of the federal funds.
    TSMC has also agreed to build a $12 billion fab in Arizona,
partly at the behest of the Trump Administration. Samsung, for
its part, is negotiating a second factory in Austin, Texas.
    The most complex tensions are in Europe, where EU officials
are clashing with national governments over whether Europe
should jump into the costly race for advanced computer chip
factories - a policy promoted by powerful EU internal market
chief Thierry Breton - or double down on its existing strategy
of specializing in niche chips. That approach is favored by the
German government and many companies.
    Intel in its announcement this week indicated its interest
in building in Europe, and became the first of the "Big Three"
chipmakers to back an EU goal of doubling its share of high-end
chip output to 20% over the next decade.  urn:newsml:reuters.com:*:nL8N2L64G6
    "Europe dropped out of this race a long time ago and no
longer has the necessary local know-how," said Helmut Gassel,
head of strategy at German chipmaker Infineon  IFXGn.DE , which
has specialized in power chips and is the leading supplier to
the car industry.
    At the same time, frustration is growing about slow progress
of an existing EU project on microelectronics. German officials
have said 50 companies - virtually all of them pursuing the
niche chip strategy that has been successful in recent decades -
have applied for funds from the program.
    A resolution of the split could come by summer. Peter
Altmaier, Germany's economic minister, and French counterpart,
Bruno Le Maire, regularly discuss along with Breton the
possibility of attracting a foreign semiconductor giant to
improve Europe's advanced chip-making capacity, a senior
official at France’s finance ministry said.
    “Each time they see each other they talk about it. The goal
is to have a decision by June,” the official said, adding that
the cost of such a project could be as high as $20 billion.
    
    THE BIG GAMBLE 
    If the plans among world governments come to pass, the
semiconductor industry could come to look much more like it did
in the 1970s and 1980s, when each nation viewed chips as
critical to their communications and defense.
    But the risk, said VLSI's Hutcheson, is that the world
builds too much chipmaking capacity, sending prices down and
wiping out big swathes of the industry, similar to a crash in
the 1980s that shuttered chip factories from Australia to South
Africa.
    "From a taxpayer perspective, it really begins to be this
question of, do we really want to start another Cold War, where
semiconductor fabs are the equivalent of nuclear weapons, where
we're wasting all these resources?" Hutcheson said.

 (Writing by Stephen Nellis in San Francisco; reporting by
Douglas Busvine in Munich, Mathieu Rosemain in Paris, Tim Kelly
in Tokyo; Foo Yun Chee in Brussels and Supantha Mukherjee in
Stockholm. Editing by Jonathan Weber and Elaine Hardcastle)
 ((Stephen.Nellis@thomsonreuters.com; (415) 344-4934;))
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