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The Czech town of Roznov pod Radhostem was best known for its rum-drizzled sweet pies and an open-air museum showing off historical wooden houses. Then came an announcement that stirred the sleepy backwater.<\/p>\n
US chipmaker ON Semiconductor Corp. picked Roznov for a new $2 billion manufacturing hub in June. The past few weeks have seen\u00a0a flurry of visits by property developers, the head of a local university\u00a0and government officials followed around by television crews.<\/p>\n
The interest isn\u2019t surprising given the investment will be the biggest by a foreign company in the Czech Republic\u00a0for three decades. But it also reflects how there\u2019s more riding on the plan to make a new generation of microchips than the prospects of a corner of central Europe.<\/p>\n
Onsemi will expand an existing site to make chips for electric vehicles and the renewable energy industry, with a contract with Volkswagen AG already lined up. Success is not just important for the town and the\u00a0stagnating Czech economy<\/a>, but also the European Union\u2019s ability to secure supplies amid a\u00a0global battle for critical components<\/a>.<\/p>\n \u201cSemiconductors are becoming the backbone of the modern economy,\u201d Industry and Trade Minister Jozef Sikela\u00a0said. \u201cThe more of these new technologies we can produce domestically, the better for our economic security.\u201d<\/p>\n The Onsemi investment is modest compared with some technology projects elsewhere in Europe. But the current Roznov facility already plays an outsized role within the company because it designs as well as produces semiconductors. That\u2019s key to moving the Czech economy toward\u00a0more profitable, less labor intensive industry\u00a0than traditional car and auto component manufacturing.<\/p>\n About 2,200 Onsemi employees in the country\u00a0make 10\u00a0million chips a day\u00a0for car, industrial and telecommunications customers such as BMW AG, Mercedes-Benz AG, Siemens AG, Apple Inc. and Samsung Electronics Co.<\/p>\n While the planned investment will create only 800 new jobs over the next seven years, Onsemi expects annual revenue at Roznov will gradually quadruple to at least\u00a0$1.2 billion because the expansion will focus on more profitable\u00a0silicon-carbide semiconductors with a higher capacity.<\/p>\n The first challenge, though, is to make sure the town of 16,000 people can\u00a0cope with the expansion<\/a>. To allay concern among locals about a shortage of schools, doctors and housing, Mayor Jan Kucera said between 300 and 400 new apartments will be built while the town will spend the equivalent of $85 million to improve local roads, parking and other services.<\/p>\n \u201cEvery mayor\u2019s dream is a brownfield high-tech investment from a company you already know that will attract educated people,\u201d Kucera said at Roznov\u2019s renovated library. \u201cAnd that\u2019s exactly what we\u2019re getting.\u201d<\/p>\n The prospect of the town\u2019s joining the next industrial era stands in a stark contrast to the challenges faced by the neighboring region around the city of Ostrava, just an hour away by car. Since the end of Communism in 1989, the easternmost part of the Czech Republic has been plagued by a steep decline of the traditional mining and metallurgical industries, and chronic unemployment.<\/p>\n Just this summer, a dormant steelmaker in Ostrava\u00a0declared itself insolvent<\/a>\u00a0after it couldn\u2019t pay energy bills and salaries to its almost 5,000 employees.<\/p>\n Production of semiconductors in Roznov goes back to the early days of the Cold War, when then-communist Czechoslovakia moved a chunk of its electronics industry there from a place near the German border. After the Berlin Wall fell, the conglomerate \u2014\u00a0then called Tesla Roznov \u2014\u00a0was broken up, with its chip unit sold to mobile phone pioneer Motorola Inc. and later becoming part of its Arizona-based Onsemi spinoff.<\/p>\n The new facility will handle the entire manufacturing process from growing silicon carbide crystals to the final product rather than those being split between Onsemi\u2019s sites on three different continents.<\/p>\n That means chips will be made closer to customers in the car industry, the\u00a0traditional driver of the Czech economy<\/a>\u00a0and now beset by rapidly rising wages, global supply-chain disruptions and competition from Chinese electric vehicles.<\/p>\n A month after announcing the Roznov expansion, Onsemi signed a multi-year deal to supply silicon-carbide parts to Volkswagen, owner of the dominant Czech manufacturer, Skoda Auto AS. Both VW and Skoda have had to repeatedly curtail or suspend production over the past three years because of supply disruption to chips made mostly in Asia.<\/p>\n The Roznov plant expansion is an \u201cimportant step in efforts to reduce the EU\u2019s dependence on imported strategic commodities and components,\u201d said Helena Horska, chief economist at the Czech unit of Raiffeisen Bank International AG, and an adviser to Prime Minister Petr Fiala. With Onsemi chips also used in solar panels, the investment might eventually help reduce the country\u2019s dependence on cars, she said.<\/p>\n Onsemi is still negotiating with the Czech government and the EU about financial support, which may cover about a quarter of the investment. If all goes well, the company plans to start building a new production hall next year across the street from its existing compound\u00a0in Roznov.<\/p>\n One Roznov resident called Ivana said she could see the longer-term benefits for the Czech Republic, yet expressed concern about the pressure on public services because of an influx of new workers. It\u2019s already hard enough to find a dentist for her small children, she said as she walked with them in the town\u2019s colorful main square.<\/p>\n \u201cMy feelings are mixed,\u201d said Ivana, declining to be identified by her full name when speaking to the media. \u201cI know this is important for the country, and good advertising for Roznov. But I\u2019m concerned about the local impact.\u201d<\/p>\n Indeed, the project has been heralded by politicians and business leaders as a boon for a country that was once a poster child of economic transformation from communism to free market.<\/p>\n The lowest unemployment in the EU has proved a curse rather than a blessing: Wage growth has for years significantly outpaced productivity, contributing to an inflation crisis the country is still reeling from.<\/p>\n The Czech Republic has started to fall behind even its poorer regional peers when it comes to investment from abroad, particularly in new technologies. A year ago, Intel Corp.\u00a0picked neighboring Poland<\/a>\u00a0for a $4.6 billion chip assembly and test plant, while nearby Hungary is\u00a0becoming a European hub<\/a>\u00a0for the production of EV batteries.<\/p>\n Onsemi wants to help fill that void, according to Ales Cab, head of the US company\u2019s Czech business. Once new supply chains are set up, carmakers and other chip buyers are likely to stick with them for at least two decades, he predicted.<\/p>\n \u201cNow is our chance to jump on the bandwagon,\u201d Cab said at the company\u2019s site in Roznov. \u201cSuch a window of opportunity opens once in a very long time.\u201d<\/p>\n<\/div>\n CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\nRecommended Newsletter:<\/strong><\/p>\n