GlobalFoundries claims German chip subsidies will 'distort competition'

US semiconductor manufacturer unhappy rival TSMC is bagging billions

US semiconductor manufacturer GlobalFoundries has criticized the German government's €20 billion ($22 billion) in semiconductor subsidies, claiming it will distort competition.

Germany's Federal Ministry for Economic Affairs has confirmed local semiconductor production will be boosted by the off-budget Climate and Transformation Fund starting next year.

As The Register reported, it appears likely that Intel is to receive the bulk of the funding, bagging €10 billion towards the estimated €30 billion cost of building its "mega fab" near Magdeburg.

A further €6 billion is said to be earmarked for companies including Taiwan's TSMC and Germany's Infineon, according to Bloomberg, to support the building of a fabrication plant near Dresden in Saxony, with the remainder left in the total aid package for additional investments.

This distribution of funding was not met with universal approval, however. GlobalFoundries said the subsidy risked distorting competition in the market, particularly because so much of the funding is going towards already dominant players in the chip market.

CEO Tom Caulfield told the Financial Times that if subsidies benefit one dominant player disproportionately, "there is a real risk of dependence on a single supplier, market foreclosure and less resilient supply chains as a consequence." Caulfield appears to have his eye largely on TSMC here as it is the largest semiconductor contract manufacturer in the world and therefore a direct rival for GlobalFoundries, while Intel largely produces its own chips, at least for now.

GlobalFoundries said it was crucial to ensure that government investment promotes healthy competition and does not inadvertently distort it.

However, the company is itself a recipient of European subsidies elsewhere. In April, it was disclosed that GlobalFoundries and European outfit STMicroelectronics were set to receive roughly €7.4 billion ($8.2 billion) in funding from the French government for a semiconductor production facility in Crolles, planned to be operating at full capacity by 2027.

This was approved by the European Commission under European Union State aid rules in line with objectives set out in the European Chips Act.

According to the Financial Times, the economy minister of Saxony, Martin Dulig, gave GlobalFoundries short shrift for its criticisms, saying that as the EU is seeking to raise its share of the global chip market from 8 to 20 per cent, "there will be enough room for all providers to thrive."

We asked TSMC and GlobalFoundries for comment on the matter, but neither was immediately available. Gartner VP Analyst Gaurav Gupta said it was important to realize these funds are for expansion or new builds, not subsidizing existing facilities.

"Helping GlobalFoundries with funding would make sense if they are expanding or have any such plans, so I am not sure why would they be unhappy – these funds are not for supporting current facilities/fabs."

He added that all this spend was driven by anxiety over the reliance on manufacturing in Asia, especially with all the tensions between the US and China and the supply chain issues that followed the pandemic.

"This notion of all nations and geographies trying to be self-sufficient across the semiconductor value chain, especially leading-edge nodes, is primarily driven by fear around over-reliance on Asia (Taiwan's proximity to China), so I guess we can't always question the financial viability or the logic for these fab buildouts," he said.

But Gupta warned this could lead to higher costs and challenges because of a shortage of skills and labor. "Also, the timelines aren't definite and could get pushed out if market demand isn't there or a company isn't able to bring up a technology at high yield. So there are risks involved," he said.

Omdia principal analyst Manoj Sukumaran, said of GlobalFoundries: "As far as I understand, their plan was to invest about $1 billion in a new facility in Dresden, which is a tiny investment compared to Intel. But GlobalFoundries is a key player in the semiconductor supply chain and they have unique capabilities in optical and RF chips. I believe it would not be hard for them to get additional funding if they have a solid investment proposal," he said.

The European Chips Act has now got final approval by the European Council and is set to become law, unlocking €43 billion ($47.4 billion) in public and private investment for the development of a European industrial base in semiconductors.

In a statement, Héctor Gómez Hernández, the Spanish Minister for Industry, Trade and Tourism, said that with the Chips Act, Europe will be a frontrunner in the world semiconductors race.

"We can already see it in action: new production plants, new investments, new research projects. And in the long run, this will also contribute to the renaissance of our industry and the reduction of our foreign dependencies," he said. ®

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