Infineon given the green light for €5B Dresden chip fab Infineon hopes to secure €1 billion in subsidies for its upcoming chip fab from the German government, but it's not waiting around to get started. On Thursday, the German chipmaker – best known for producing semiconductors used in automotive, industrial, and power applications – said it has secured permission from regulators …
So, Infineon thinks the investment cost over just three years is going to be €5bn. And after that, Infineon claim it will generate €5bn revenue *every year* for the lifetime of the fab, which might be 15-20 years. On reasonable margin assumptions, it should be generating an annual profit of €2bn. But Infineon thinks it needs to be paid €1Bn by the government, in order to build this money printing press?
Clearly, its internal figures agree with those of every single other industry analyst who has looked at this (half a dozen actually), which is: there’s near-zero operating profit at the prices it’s output will command. In this industry segment, they can just about manage to not lose money on every wafer they ship, operating expense. But the €5bn initial investment needs quite rose-tinted spectacles to break even over a 15-20 year lifespan. That’s if you depreciate it 6% annually (€300M depreciation annually). If you use a more reasonable estimate of 4% normal interest rates, now you are looking for €500M annually to service the debt, and that’s badly loss-making. Last couple of years, Infineon have been making up to €2bn annual profit, but for many years it was about €600M. If interest rates rose even to 8%, Infineon would be looking for a state bailout in fairly short order. That’s why they *need* (not want) a state subsidy to build this.
For those with a longer memory, none of this is new of course. Back in the seventies, the semiconductor industry which supplied the whole Soviet bloc was located there. Carl Zeiss Jena was the ASML of the day, VEB Erfurt made the chips, VEB Dresden assembled them. The industry was never economic, and their chips cost roughly 10x to produce than what USA and Japan could make them for. However, they did it because the Soviets told them to, and also it was Erich Honeckers personal pet project of national pride. Any analogies between then and now are purely coincidental.
The whole boondoggle cost them so much, that by the end every GDR citizen theoretically owed two years salary on the project, and the consequent reduction in living standards somewhat contributed to the fall of the Berlin Wall. The GDR just ran out of money.
With all due respect to history, the analogy seems a tiny bit flawed.
Unlike Honecker's socialist nightmare, contemporary Germany has been running a surplus budget for decades now - they can finance as many bailouts as they'd like and investors of the German state doesn't seem to be concerned about that at all.
Also, Infineon might not be a mighty FAANG, but it has a solid place amongst the market leaders in the power electronics segment. TGVs and Teslas run on Infineon IGBTs and the green tech part of their business seems to fit into the Energiewende strategy, so I guess they have somewhat of a better excuse of begging for subsidies than the likes of Intel.
“Germany can finance as many bailouts as they’d like”.
Good. My primary point was that this is a stupid investment, and those exact towns have form for making that exact mistake, for near-identical reasons.
As to what Germany can afford:Adam Smith, 1777, “There is a great deal of ruin in a nation". $5bn here, $50bn there, even $500bn, Germany will survive. But what *isn’t* survivable is a culture of pet projects pursued against business logic.
Surely it would be more economical to basically shut down the eastern part of the country, move all the jobs to Frankfurt and then every few years spend a few Euro on a poster campaign claiming you are "levelling up" ( just make sure you don't hold any referenda )
.... Pitch to ZDF, a comedy about a bunch of ossi semiconductor engineers that move to Taiwan to look for work and have hilarious cultural misunderstandings.
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