Ignoring lucrative subsidies, Infineon chose Austria over China as the location to build a new €1.6 billion chip factory. The decision is partially motivated by fears about intellectual property theft.

Infineon's chip shop.

It is highly unusual for a European company to invest in the production of computer chips in Europe. Asia is the world's chipmaking capital -- only 9 percent of all chips come from Europe.

But German chipmaker Infineon is bucking that trend. The Munich-based semiconductor maker, with €7.6 billion in annual revenue, is investing over €1.6 billion to build a new production facility for power semiconductors at the company’s Austrian headquarters in Villach.

It amounts to the biggest investment in this kind of technology inside Europe for years; only car-parts maker Bosch is building on a similar scale in Dresden, Germany. Infineon power chips end up in washing machines, solar power equipment and Alstom trains.

Had the company built in Asia, where most of the world’s other leading manufacturers work, they would have made hundreds of millions of euros back in subsidies and tax breaks – especially if they had built somewhere like China. There, the factory, which should be operational by 2021 and is forecast to make around €1.8 billion in revenue, would have been profitable before it even started the first production line thanks to several hundred million euro in state support, industry sources said.

“Asia has multiple advantages when it comes to location costs,” Holger Rubel, a senior partner with Boston Consulting Group, explains. “It starts with the availability of land and ends with tax breaks.”

Ground breaking investment in Villach this weekend.

Infineon, spun off from Siemens in 1999, has had a base in Villach for around 50 years. That history offers advantages that are more important than financial handouts, Infineon boss Reinhard Ploss said. But, according to insiders, the decision to build in Europe was also motivated by fears of industrial espionage and the potential loss of intellectual property if it had chosen China.

Ploss did call for better state support for chipmakers in Europe and a more “aggressive industrial policy” from the European Union. But at the groundbreaking ceremony in Villach over the weekend, attending politicians only handed out warm words.

“If we need to, we will do everything we can to support you,” Austrian Chancellor Sebastian Kurz, who attended the ceremony, said.

“[Infineon’s investment] contributes to putting Europe back on the fast lane in technologies that are important for our digital future,” Mariya Gabriel, the EU’s Commissioner for Digital Economy, added.

Together with Dutch-based NXP and French peer STMicroelectronics, Infineon is one of the few big, specialized chipmakers in Europe. Their main rivals are Bosch, Texas Instruments and ON Semiconductor in the US, Renesas and Mitsubishi in Japan, and Samsung.

Ploss has promised investors revenue growth of 9 percent per annum on average, which is considerably more than experts forecast for the industry at large. Infineon's new factory should contribute to reaching that goal. Its fourth-quarter results announced on Monday showed sales grew by 12 percent, especially thanks to the sale of chips that end up in electric and self-driving cars and power equipment.

Joachim Hofer covers the sports, leisure and IT sectors for Handelsblatt. To contact the author: [email protected]