European Chips Act: Good, but good enough?

With the goal of increasing the world market share of domestic semiconductor production from 10 to 20 percent, one entered the race with China and the United States. While the competition has so far mobilized more than three times the financial volume in each case, much is still vague in Europe. In this respect, the legitimate question arises as to who should give up market share to Europe in the future?

In early February 2022, the European Commission proposed the European chip law, the European Chips Act. In many words at the time, “It (the Act) will mobilize EUR 43 billion in public and private investment.” What represented the largest European funding sum of all time in this area was put into perspective when one looked back at the original plans of the EU member states.  At the beginning of 2021, an initiative of the then still 19 EU states promised to mobilize around EUR 145 billion for the continental microelectronics industry at country level alone. The current chip bill now only talks about eleven billion euros in EU grants. Most of these are to be diverted from other funding pots. The rest of the funding – 32 billion euros – is expected to come from the now 21 member states and industry, which would be only a fraction of the amount announced in 2021.

43 billion euros should be available “soon”. 500 billion euros would be needed, however

How with this, in international comparison, manageable amount the tripling or quadrupling of European chip production and thus the targeted world market share of 20 percent is to be achieved, is written in the stars. After all, according to current forecasts, not only will the global semiconductor market double by 2030, but Asia and North America will also continue to invest much faster and more ambitiously than Europe is currently doing. “You would have to invest around 500 billion (euros),” NXP CEO Kurt Sievers already calculated at the “Globalfoundries Technology Summit 2022” in Dresden, Germany, to achieve Europe’s stated goals. And Sievert should know. After all, NXP (Netherlands) is Europe’s third-largest chip manufacturer, after ST Microelectronics (Switzerland) and Infineon (Germany).Admittedly, much is still vague at present. The European Chips Act has still not been decided. Since February, semiconductor locations, such as Silicon Saxony, and the companies active here have been waiting in vain for news. Except for the amount communicated by the European Commission, little or nothing is known. Also from the European member states one hears hardly something. Spain was the first country to come out of the woodwork, planning to invest 11 billion euros. Germany, for its part, pledged 14 billion euros through new Economy Minister Habeck. Other nations, above all France, are still holding back with such commitments. If the remaining 19 member states were to follow Spain and Germany’s lead, the intra-European semiconductor efforts would be in good shape. Up-to-date it looks however still meager

The US is investing 200 billion euros, China over 150 billion and Korea alone 452 billion euros

But not only the according to Expert:innen currently much too low funding amount of the Chips Act caused doubts about the seriousness of the communicated EU goals. The question of who Europe wants to steal world market share from, when the competition from Asia and America is investing much faster and even more, is still like the proverbial elephant in the room. The USA has long since introduced its own Chips Act. At 52 billion euros, it doesn’t seem any more powerful than its European counterpart at first glance. But this sum is intended in the short term for the construction of new semiconductor factories on American soil and is already available. In total, the American bill covers an investment sum of 200 billion euros by 2030.  
China is also pursuing ambitious goals. By 2025, the People’s Republic would like to source around 70 percent of the semiconductors for its own market from domestic production. At present, this target is in doubt, as China currently covers only slightly more than 30 percent of its own requirements with production in its own country. However, with a cautiously rumored 150 billion euros in domestic investments, China is not skimping here either. Insiders assume that far more than this sum will be available. Because with the claim of a great power in all areas, China’s leadership should also have noticed the investment efforts in the near environment. Here, the Taiwan Semiconductor Manufacturing Company (TSMC) alone – the world’s largest semiconductor manufacturer – plans to invest over 100 billion euros. Korea is throwing an insane 452 billion euros into the ring. Japan and India are also investing, although nowhere near such dizzying heights.

Semiconductor production is complex and expensive. The industry is ready to invest.

But not only the timid action and the currently still manageable funding amount irritate. Strange-seeming wishes of the EU Commission, such as intervening in the production profile of chip factories in times of crisis, also miss the mark. After all, the production of semiconductor chips is a long-term process that can drag on for months and thus can only be influenced to a limited extent or not at all in the short term. The average runtime of a chip in a typical semiconductor factory alone is two to three months. Up to 1,200 work steps are required here. And even then, the chip is still not finished. Another one to two months are needed at other locations before the finished chip or power semiconductor is ready. Individual components of a chip cross more than 70 international borders, and anyone who thinks they can divert production volumes on demand is on the proverbial wrong track. Despite the financial and content-related inconsistencies, the announcement of the program alone had an impact. Bosch (1 billion euros), ST Microelectronics and GlobalFoundries (5.7 billion) and Intel (17 billion), among others, have announced short-term investments in Europe in recent months. Intel would even like to invest around 80 billion euros here in the long term. Italy, Ireland and Germany are the targeted destinations. According to Intel, 70 percent of this investment is to be “privately” funded. 30 percent, according to the wish, would then have to be taken over by the “public” sector, i.e. the respective national state and the EU. No details are known yet, but the company says it is currently in “productive coordination with the EU and the EU member states. Remains to hope that these quickly come to a positive result, because companies tend to pragmatism, build where money is available.

Europe’s semiconductor sites are getting impatient. When will Europe respond?

It is therefore only too understandable that impatience in Germany – and here especially at the few domestic microelectronics locations – is growing from month to month. Whether in Saxony, where, among others, Minister President Michael Kretschmer as well as Minister of Economics Martin Dulig have been insisting on a speedy implementation of the “Chips Act” not only since yesterday. Or in Saxony-Anhalt, where Prime Minister Haseloff does not want to see the freshly hunted hides swim away again immediately after Intel was awarded the contract for a new mega-fab in Magdeburg. Both federal states and their prime ministers never tire of calling for more speed in what has been promised, across all media and possibilities. Most recently, Saxony’s regional minister Thomas Schmidt traveled to Brussels to exert pressure on the EU for his part.

Schmidt publicly let it be known: “Thus, in many conversations I have had, the funding of the chip law was criticized. It has become clear that more fresh money is needed than the Commission has provided so far. At the same time, the programs from which funding is now to be diverted must not be weakened.” In addition, the funding must also be available for companies that are indispensable for semiconductor production or that manufacture new types of preliminary products or production equipment, the minister demanded. It seems as if the old adage proves true: Well meant is far from well done. If Europe wants to generate more than short-term attention, the plans formulated must finally be followed by action. The microelectronics world is not waiting for Europe, it  continues to turn every day and increasingly faster.

This article first appeared as part of our NEXT magazine, “In Focus: Microelectronics.” To the complete issue of the magazine.

More articles: Germany’s microelectronics landscape – The semiconductor heart of Europe beats here. Why are semiconductor fabs so expensive? Saxony’s chip industry is strengthening its supply chains.

Photo: European Union, 2021