A recent ruling by Germany's Federal Constitutional Court has cast doubt over funds earmarked to subsidize the building of local chip factories by companies such as TSMC and Intel, it has emerged.

The Bundesverfassungsgericht ruled last week that the German government's decision to reallocate €60 billion (€65.4 billion) of unused funding from pandemic support measures to its Climate and Transformation Fund in 2022 was unconstitutional.

It judged that the de facto unlimited use of emergency borrowing authorizations from 2021 in subsequent fiscal years was impermissible, and therefore that the Climate and Transformation Fund be reduced by €60 billion. The fund is said to cover about €210 billion ($228.9 billion) in total for the period from 2024 to 2027.

Some of that funding was set to subsidize chipmaking in the country, including contributions for Intel and TSMC to set up fabrication facilities there. According to German tech website ComputerBase, the future of the subsidies is now in question, with a member of the budget committee calling for their removal, while, the government has imposed a budget freeze as the mess is sorted out.

Intel reached an agreement with the German government in June this year for about €10 billion ($10.9 billion) in subsidies towards the building of its planned wafer fabrication facility to be sited at Magdeburg in the state of Saxony-Anhalt.

The chipmaker said at the time that its own investment in the site was expected to add up to more than €30 billion ($32.7 billion), meaning that subsidies would make up for around a quarter of the cost of building it.

Taiwanese semiconductor contract maker TSMC was also set to receive subsidies for the construction of a 300mm wafer fabrication facility outside Dresden. In this case, however, the site is planned as a joint venture along with European chip companies NXP, Infineon, and Bosch.

This chip factory was expected to cost €10 billion ($10.9 billion), with subsides making up half of that. TSMC had committed to paying €3.5 billion ($3.8 billion) of the cost, with its partners stumping up the remaining €1.5 billion ($1.6 billion) between them.

Germany's State Secretary for Economic Affairs Michael Kellner, warned that: “As things stand today, without the climate and transformation fund, neither the chip settlement in Dresden nor the chip settlement in Magdeburg and the reconstruction of the solar industry in East Germany are secured.”

It isn’t clear what would happen to the plans for these chipmaking facilities if the subsidies for their construction are not forthcoming. At the end of last year, Intel said it was delaying the start of construction of the Magdeburg site, in a move that was viewed by industry observers as the company trying to persuade the German government to stump up more cash.

We asked Intel and TSMC if it the latest developments would affect their plans for the respective fabrication plants if the subsidies were cut, but neither had responded at the time of publication.

Both companies have seen a dramatic drop in their revenue over the past year, due to the global semiconductor market taking a dive. Intel saw its revenue down 36 percent during the first quarter of this year, and TSMC reported a 14.6 percent drop for Q3.

The court ruling has caused a serious problem for the traffic light coalition of Chancellor Olaf Scholtz's Social Democrats, the Greens, and the business-friendly FDP - blowing a €60 billion hole in the budget isn't inspiring much confidence among the electorate and especially with the country's industrial chiefs.

The Bundestag is in crisis mode and is currently considering releasing the country's self-imposed debt brake, according to reports. ®

https://www.theregister.com//2023/11/24/german_budget_woes_threaten_chip/