EU Plan to Boost Share of Global Chip Production Must Address Key Challenges

C. Drake

Summary Bullets:

  • The EU Chips Act is intended to help Europe compete in the global market for semiconductors, while ensuring that EU industries are protected against future supply shortages.
  • The EU’s strategy faces several hurdles, including the funding gap that exists between the EU’s support package and much larger investment packages in the US, South Korea, and China.

The EU Chips Act, announced by the European Commission on February 8, is intended to have far-reaching consequences for Europe’s ability to compete in the global market for semiconductors and for ensuring that EU industries – including automotive and medical device manufacturing – are better positioned to deal with future semiconductor supply shortages.

The new EU Chips Act envisages the creation of EUR 43 billion (USD 49 billion) of public and private investment to support both chip making and the inauguration of leading chip fabrication plants – sometimes referred to as ‘mega fabs.’  Public funding will aim to encourage large players to establish new manufacturing facilities.  Meanwhile, a ‘Chip Fund’ will facilitate access to funding for startups to help them mature their innovations and attract investment, and a dedicated semiconductor equity investment facility under InvestEU will support scale-ups and market expansion.  By 2030, the EU aims to have doubled its current share of global semiconductor chip production to 20%.

The EU has several notable strengths that could benefit this latest effort to boost its global chip-making credentials.  These include its world-leading position in semiconductor R&D and its role in producing equipment essential to chip manufacture.  For example, Dutch firm ASML is the sole global producer of lithographic technology from which chip production templates are made.

Nevertheless, some of the goals associated with the new EU Chips Act are ambitious and face several hurdles.  Among them is the historical lack of success with EU-level interventionist policies to support strategically important industries.  Despite a similar plan, unveiled in 2013, to double Europe’s production of semiconductors to 20% of global output by 2020, the EU still accounts for just 10% of the global total.

A second challenge for the EU plan is the considerable funding gap that exists between the support package unveiled by the EU and the much larger sums of money being invested in chip design and manufacture in the US, South Korea, and China.  The US currently has a $52 billion federal funding package working its way through Congress.  However, additional public and private funding is anticipated as individual US states try to encourage chip manufacturers to establish new production facilities.  Meanwhile, South Korea will spend $451 billion on semiconductor production over the next decade, with funding coming from a mixture of government support packages, tax incentives, and corporate investment pledges.  Although China relies heavily on imported chips, the country established a National Semiconductor Fund in 2014 and appears to be on track for having invested $150 billion in chip design and manufacture by 2025.  Chinese tech firm Huawei recently announced that it was stepping up investments in companies committed to strengthening China’s semiconductor supply chain.

A further challenge for the EU will be its ability to lure one of world’s three largest semiconductor manufacturers – TMSC, Samsung, and Intel – to establish a ‘mega fab’ chip production facility in the EU.  Of these three, only Intel has openly expressed an interest in the potential offered by the EU Chip Act and has said it is considering a significant increase in its European footprint.  Much will depend on the success of strategic and organizational changes currently underway at Intel, led by new CEO Pat Gelsinger, which will see a new emphasis on manufacturing on demand.

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