The challenge for the Saxon capital will be to remain competitive as the global chips race heats up.

This article is part of a special report, The New Factory Towns.

DRESDEN, Germany — If Europe’s best manufacturing days are behind it, no one told Dresden.

The eastern German city and Saxon capital has become an industrial stronghold, with a world-class microchip manufacturing sector that is attracting investment from as far away as Taiwan.

The challenge for the city, as the global microchip race heats up, is whether it will be able to maintain its status as an industry leader, given Germany’s tight skilled-labor market and governments around the world pouring subsidies into the sector.

Dresden is perhaps best known for being ferociously bombed by the Allies near the end of the Second World War in a campaign that killed an estimated 18,000-25,000 people and left the city in ruins. After the war, the city became part of the communist German Democratic Republic (DDR).

Now it’s the home base for several companies aiming to do high-tech, high-precision work: produce the semiconductors that power everything from cars to smartphones. About 76,000 people in the Dresden area are already working in the microelectronics and IT sector; that number is expected to exceed 100,000 by the end of the decade.

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