With the aim of increasing the global market share of European semiconductor production from 10 to 20 percent, the EU entered the “chip race” with Asia and North America in February 2022. While the competition mobilized incredible financial volumes within a very short space of time, much remained vague in Europe. It took 1.5 years for the EU Chips Act to pass through all political instances and finally be adopted by the European Council. In July 2023, the time had finally come. Germany had only been waiting for this and confidently forged ahead in the same month. The German government provided 20 billion euros in funding for the semiconductor industry as part of the EU Chips Act well before the law came into force in September 2023. Within a very short space of time, the relocations and location decisions of Intel (project costs: €30 billion), Infineon (€5 billion) and ZF/Wolfspeed (€3 billion) were announced. In other words, investments of around 38 billion euros. Finally, on August 8, the world’s largest contract manufacturer of semiconductors, Taiwan Semiconductor Manufacturing Company (EUR 10 billion), made its latest and long-awaited commitment to build a new plant in Dresden. With a total investment of 48 billion euros, Germany has already officially surpassed the Chips Act planned for the whole of Europe by 5 billion euros. However, little or nothing is heard from the rest of Europe.
Europe negotiated for 1.5 years and then acted too hesitantly
But let’s look back: In February 2022, the European Commission proposed the European Chips Act. At the time, it was said: “It (editor’s note: the law) will mobilize EUR 43 billion in the form of public and private investment”. What represents the largest European funding sum of all time in this area is put into perspective when one looks back at the original plans of the EU member states. At the beginning of 2021, an initiative of the then 19 EU member states – in the midst of the coronavirus pandemic and the pressing shortage of semiconductors – promised to mobilize around 145 billion euros for the continental microelectronics industry at country level alone. What remained after the announcement of the chip law was meagre. Only Spain (12.3 billion euros) and Germany (15 billion euros) made announcements in 2022 and held out the prospect of concrete national funding amounts. The European Union, for its part, declared its willingness to contribute eleven billion euros in EU subsidies. Most of this is to be diverted from other funding pots. In July 2023 and after the chip law was passed in the European Parliament, Germany improved its funding commitment once again. The new commitment was 20 billion euros. After the Chip Act came into force on September 21, 2023, 43.3 billion euros were available for the EU Chip Act. A commitment from only two member states and the EU, which has not yet resulted in any further pledges from other member states, even after the EU Chips Act came into force.
43.3 billion euros are currently available. However, 500 billion euros would be needed.
How this amount, which is manageable by international standards, is to be used to triple or quadruple European chip production and thus achieve the targeted global market share of 20 percent by 2030 is anyone’s guess. After all, according to current forecasts, not only will the global semiconductor market double by this target year, but Asia and North America will also continue to invest much faster and more ambitiously than Europe is currently doing. “We would have to invest around 500 billion (editor’s note: euros),” NXP CEO Kurt Sievers calculated at the “Global Foundries Technology Summit 2022” in Dresden in order to achieve Europe’s stated targets. And Sievert should know. After all, NXP (Netherlands) is the third largest chip manufacturer in Europe, after ST Microelectronics (Switzerland) and Infineon (Germany). The objectives of the EU Chips Act – this much is undisputed – are understandable regardless of this. The funding program is intended to build up capacity in the microelectronics sector on a large scale and ensure innovation in the EU. It is therefore intended to ensure that the EU is much more self-sufficient in this area. Last but not least, it should guarantee that the EU can react quickly in the event of semiconductor supply bottlenecks – as happened during the coronavirus pandemic. However, whether the current Chip Act can fulfill these wishes is another matter.
Europe’s Chip Act is built on three pillars – research, production and crisis response
The holy trinity of the EU Chip Act – the three pillars on which it is built – seems coherent.
Pillar 1: Knowledge transfer from the laboratory to production
The “Chips for Europe” initiative – strengthens Europe’s technological leadership: it facilitates the transfer of knowledge from the laboratory to production, bridges the gap between research, innovation and industrial activities and promotes the industrialization of innovative technologies by European companies. The “Chips for Europe” initiative will be implemented primarily by a joint undertaking, the Joint Undertakings Chips (JU-Chips).
The initiative will be supported by EU funding of 3.3 billion euros, which is expected to be supplemented by funding from the member states. Specifically, these investments will support measures such as the establishment of advanced pilot production lines to accelerate innovation and technology development, the development of a cloud-based design platform, the establishment of competence centers, the development of quantum chips and the creation of a chips fund to facilitate access to debt and equity capital.
Pillar 2: Investment in production facilities for chip manufacturers and their suppliers
The second pillar of the European Chip Act incentivizes public and private investment in production facilities for chip manufacturers and their suppliers. It sets a framework to ensure security of supply by attracting investment and increasing production capacity in semiconductor manufacturing. To this end, it establishes a framework for integrated production facilities and open EU foundries, which are unique in the Union and contribute to security of supply and a resilient ecosystem in the interest of the Union. The Commission has already indicated at the time of the proposal for the Chip Act that State aid for original equipment manufacturers may be granted in accordance with the Treaty on the Functioning of the European Union.
Pillar 3: Coordination mechanism between Member States and the Commission
A coordination mechanism between Member States and the Commission has been established under the third pillar of the European Chip Act. It is intended to strengthen cooperation with and between the Member States, monitor the supply of semiconductors, estimate demand, anticipate bottlenecks and, if necessary, trigger a crisis phase. As a first step, a semiconductor alert system was set up on April 18, 2023. It enables all parties involved to report disruptions in the semiconductor supply chain.
The Chip Act is in force, but a pan-European strategy is missing
However clearly formulated these three pillars may be, their success is uncertain without a pan-European microelectronics strategy. And this is still not in sight, even after the Chip Act came into force. Perhaps this is why the response from the member states has so far been limited. After all, money alone will not improve Europe’s position in international competition. Even with the new plants communicated so far, current dependencies will remain. Europe will certainly become more independent in individual areas or feel better positioned. However, many people in the EU still do not seem to be aware of the complexity of the microelectronics manufacturing process. For example, some of the EU Commission’s strange requests in the chip law, especially in pillar three, are irritating. The monitoring of and intervention in the production profiles of local chip factories during times of crisis is clearly out of touch with reality. After all, the production of semiconductor chips is a long-term process that can take months and can therefore only be influenced to a limited extent or not at all in the short term. The average production time of a chip in a typical semiconductor factory alone is two to three months. Up to 1,200 work steps are necessary here. And even then, the chip is still not finished. Another one to two months are needed at other locations before the final chip is ready. Individual components of a chip cross more than 70 international borders. Anyone who thinks they can redirect production volumes on demand is on the proverbial wrong track. A reality that the German automotive industry has had to painfully acknowledge during the coronavirus pandemic.
What should be researched and developed? Who should settle in Europe?
However, it is not only the control mechanism that pillar three is to establish that raises questions. Pillars one and two could also only develop their full effect with a European microelectronics strategy. This is because what is to be researched and developed with the funds in pillar one (13 billion euros) or what is to be sensibly manufactured after the settlements and expansions in pillar two (30 billion euros) is not as clearly defined as it should be. A demand analysis by the EU (Chips Survey) from 2022 revealed that 65% of the chips required in the EU are needed in older structure sizes (i.e. between 65 and 90 nanometers). Europe currently has only a few end users for smaller structure sizes, such as those that will be manufactured at the new Intel plant in Magdeburg in the future. Instead, Europe’s strengths lie in the industrial (e.g. machinery and plant engineering or energy systems), automotive and medical technology sectors. These are sectors that have a huge demand for microchips, but more in the area of larger/older chip variants, often as power semiconductors. The question also arises as to how Europe intends to position itself more independently beyond pure production. In addition to numerous materials for the manufacture of wafers – the basic structures of chip production – which only come from Europe in small quantities, this also involves machines and systems for production. More than 50 different machines are used for the production of chips. Over 300 different chemicals. So far, little has been heard that subsidized expansions are also being planned in these important areas.
The USA is investing 200 billion euros, China over 150 billion and Korea alone 452 billion euros
Independent of these unanswered questions, Europe is currently fighting an unsuccessful battle for market share. The amounts invested so far are too small to keep up with the “big players”. As NXP CEO Kurt Sievers has already stated, ten times as much investment would be necessary to gain market share from Asia or North America. After all, the USA has long since launched its own Chips Act. With the equivalent of 52 billion euros, at first glance this does not seem any more powerful than its European counterpart. However, this sum is intended in the short term for the construction of new semiconductor factories on American soil and has been available for just under a year. In total, the American bill includes an investment sum of 200 billion euros by 2030 – for production as well as research and development.
And China is also pursuing ambitious goals. By 2025, the People’s Republic wants to source around 70 percent of semiconductors for its own market from domestic production. This target is currently doubtful, as China currently only covers just over 30 percent of its own requirements through domestic production. However, with cautiously circulated figures of 150 billion euros in domestic investment, the country is not letting itself down here either. Insiders assume that far more than this sum is likely to be available. With its claim to be a major power in all areas, China’s leadership is also likely to have noticed the investment efforts in the nearby Asian region. Taiwan Semiconductor Manufacturing Company (TSMC) alone – the world’s largest semiconductor manufacturer – is planning to invest over 100 billion euros here. Korea is throwing an insane 452 billion euros into the ring. Japan and India are also investing, albeit not to such dizzying heights.
Europe’s goal of strengthening its own role in the international semiconductor business through the European Chips Act is both understandable and realistic – regardless of the international competition. The funding sums made available to date and the investment commitments received from semiconductor manufacturers are already very promising. However, it is now important for all European member states to speak with one voice and forge joint, robust plans. If the commitments made by the EU (EUR 11 billion), Spain (EUR 12.3 billion) and Germany (EUR 20 billion) are followed by the other 25 member states, great things can happen in Europe. However, this will require even greater coordination between the EU member states and semiconductor regions. A common microelectronics strategy and even stronger cooperation between nation states, semiconductor regions and clusters is the prerequisite for actually becoming less dependent on players from Asia and North America. The management consultancy PricewaterhouseCoopers (pwc) published a possible strategic approach in 2023. “Implementing this strategy will require public and private investment of around 115 billion euros over a period of ten years. Taking into account all synergy effects, the positive impact on the global macroeconomic situation is estimated at over EUR 3 trillion in 2035,” writes pwc. A correct and important proposal that should also be heard in the political arena.
As important as the steps taken by the EU so far have been, they must now be continued consistently and strategically supported. This is the only way to develop and expand critical parts of the semiconductor value chain in Europe in order to be more resilient to crises in the future. Even an economically strong country like Germany will not be able to change much here on its own. The whole of Europe is needed. And this requires appropriate strategic coordination and an effective financial commitment across all member states.
This article was first published as part of our NEXT magazine “In Focus: Microelectronics”.
👉 To the full issue of the magazine
👉 Infographic: Global comparison of market shares and investment volumes in microelectronics
Photo: European Union, 2021