MORE THAN 20 YEARS AGO, SUPPLIER Robert Bosch decided the university town of Reutlingen, Germany, 30 minutes south of Stuttgart, would be the center of competence for semiconductors, the fundamental building blocks for cell phones, laptop computers, game consoles and, of course, cars.

It turned out to be a strategically brilliant wager as the market for consumer electronics and connectivity exploded during the 1990s and as semiconductors and software took the place of purely mechanical devices in new vehicles.

Bosch's Automotive Electronics division began large-scale production of chips and sensors in Reutlingen in 1995, providing the No.1 auto supplier in Europe (and eventually the world) with an internal source for the microchips that enable its most significant products: antilock brakes and engine controllers and, in subsequent years, electronic stability control, common-rail clean diesel, navigation and infotainment.

When demand for semiconductors across multiple sectors outstripped supply in the mid 2000s, Bosch management knew its bet had paid off and realized it was time to expand the operation.

In March 2010, Bosch opened a second wafer fabrication plant — so called because the square microchips are arrayed edge to edge on a round silicon disk that resembles a wafer, then later cut with a saw into individual pieces.

Since 1994, the original plant had produced 6-in. (150 mm) wafers.

The new plant, dedicated to 8-in. (200-mm) wafers with room for more and larger chips, cost more than E600 million ($870 million) — the largest single investment in Bosch's history.

The first plant runs at full capacity, producing 1,500 wafers a day with three shifts, operating 360 days a year.

The new plant continues to ramp up, fabricating 300 wafers a day on three shifts. Manufacturing cells are being added, and Bosch has said by 2016 the new plant should reach full capacity of 800 wafers daily.

Tim Frasier, North American regional president for Bosch, says he is confident the plant will be maxed out before then, forcing the supplier to consider installing more capacity.

Deciding where to place that facility will require exhaustive study, he tells Ward's. Asia/Pacific would be a logical location.

“That's definitely an expanding area. There are a lot of manufacturing capabilities there, especially in this sector,” Frasier says.

“But we will look globally. There are other options globally on where it makes sense to put it.”

Another option is to expand the existing plant, says Joachim Kornmayer, senior manager of product marketing-semiconductors for Bosch Automotive Electronics. “There are possibilities here for further expansion,” he says.

Some 6,400 people work for Bosch's Automotive Electronics division in Reutlingen, including 1,300 development engineers and technicians and 2,800 employees in manufacturing and testing.

By 2016, 800 people are expected to be dedicated to wafer fabrication.

The painstaking and precise manufacturing process requires an isolated foundation — a building within a building — so it does not move or vibrate due to seismic activity or heavy trucks passing on nearby roads.

Solar cells on the windows and roof capture up to 240 kW of energy to help power the building.

It takes two years for a development team to design the integrated circuits and sensors. Fabrication takes between 40 days and six weeks to print, etch, grow and embed the wafer, using raw materials such as boron, arsenic, aluminum and phosphorous and a disk made of high-purity, monocrystalline silicon.

Output is to 2.3 million integrated circuits daily. In the past 10 years, the complex has produced more than 3 billion integrated circuits.

Transistors, diodes, resistors and capacitors are deposited in the integrated circuits in an exacting process that requires class 1 cleanroom conditions.

Air is meticulously filtered to prevent dust or pollutants from tainting the chips, and workers are covered head to toe as they run the equipment and test every single wafer for quality assurance.

In addition to application-specific integrated circuits, the plant also fabricates microelectro-mechanical systems components, which will play an important role as advanced automotive sensors capable of measuring the slightest movement.

Bosch is the world's No.1 producer of automotive MEMS sensors, used in airbag and electronic stability-control systems. Bosch has fabricated 1.5 billion MEMS sensors so far.

Production costs vary wildly, from E0.20 ($0.29) to E4.00 ($5.80) per chip, depending on complexity. The chips are as small as 0.4-in. square (1-mm) and as large as 1-in. square (25-mm).

Semiconductors will continue to flourish in vehicles as new functionality and stricter fuel-economy mandates require them.

A Mercedes S-Class sedan, considered one of the most advanced vehicles in the world, has about 700 chips. An engine controller, alone, can require up to 200 chips; an airbag module 100. Electric power steering needs up to 15 microchips.

Even with its own ready-made source, Bosch still buys a lot of specialized chips from other suppliers. But it also sells semiconductors to some of its automotive competitors.

“We are a growing business,” Kornmayer says. “We've had a lot of requests where guys said, ‘Hey, would you mind selling us this or that particular component?’ If it's OK with the systems divisions, and if it doesn't have a particular Bosch knowledge inside, then why not? It makes money.”

Frasier says the fabrication plant has given Bosch a competitive edge, especially in recent years when automotive rivals struggled to find enough semiconductors during the recession.

“In 2008 and 2009, a lot of the industry took capacity offline,” he says. “When the industry started to rebound, we started to see the investment in incremental capacity.”

Customer orders were coming in, but many suppliers lacked facilities to meet demand. “Getting that capacity online is what created the shortage,” Frasier says. “Even though we had our own facilities online and were investing when others were not investing, we still were hit by that.

“Did we maneuver it better than our competition? I like to think so primarily because we understand the details of semiconductor manufacturing. We were working with our suppliers directly trying to define how to manage that crisis.”

Today, the shortage of automotive microchips still exists, but to a lesser extent. “I think industry-wide, it's still a bit of a challenge,” Frasier says. “But I'd say by the end of this year, it should be fully resolved.”