Sunday , 21 July 2024
Home Global Economy Is Europe's chip offensive worth it?
Global Economy

Is Europe's chip offensive worth it?

Thierry Breton has gotten used to hopeless situations. The EU internal market commissioner was once the boss of French IT companies such as Bull, Thomson and Atos and fought against the overwhelming US competition. Now the Frenchman wants to bring Europe's chip industry to life. By 2030, the share of European semiconductor manufacturers in global chip production is expected to double to 20 percent. So far he has cancer at nine percent.

Almost 45 billion euros for investments in European chips

The race to catch up should succeed with a gigantic investment program: The EU Commission wants to make almost 45 billion euros available to the industry so that it can drive forward semiconductor development and build new factories on the Old Continent. A good two thirds of the investments could be used as subsidies.

The billions should primarily attract the foreign chip giants to produce in Europe. Intel is planning to build two factories in Europe for $20 billion if the conditions are right. That means: If enough subsidies flow. Because the construction of chip factories in Europe has so far been 30 to 40 percent more expensive than in Asia, says Intel boss Pat Gelsinger.

TSMC and Intel are looking for locations in Europe

The world's largest chip manufacturer, TSMC from Taiwan, and the chip group Global Wafers are also looking for locations in Europe for future chip factories. In Germany, especially in "Silicon Saxony" around Dresden, there are high hopes of being awarded the contract.

It is questionable whether the EU is promoting domestic manufacturers with the "Chips Act". You have managed to raise billions in investments recently without much help from Brussels. In the middle of the corona pandemic, the Munich chip group Infineon set up a new plant in Villach, Austria, at the border triangle with Italy and Slovenia. Costs: around 1.6 billion euros. "In view of the growing global demand for power semiconductors, the time to create new capacities in Europe could not be better," said Infineon boss Reinhard Ploss proudly at the time.

Nevertheless, Infineon now welcomes the European chip law. It is "an important step towards establishing a world-class semiconductor ecosystem in Europe and reducing one-sided dependencies," says Ploss. In the past he had repeatedly criticized the unfair subsidy race on the global chip market.

"Wake-up call for the microelectronics industry"

The electronics industry association ZVEI praises the EU Chips Act as a "wake-up call to finally strengthen the microelectronics industry in Europe in the long term and avoid one-sided dependencies". The interest group of "Silicon Saxony" comments similarly friendly on the chip offensive from Brussels. "It is very good that Europe is creating the framework conditions with the 'Chips Act' that have led to the rise of market-dominating chip companies in other regions of the world," says managing director Frank Bösenberg to "Europe left the race for smaller and more powerful chips a long time ago. A new entry is ambitious and will take a long time."

Independent experts are more reserved. "Although the debate has mainly revolved around the latest mega fabs, the regulations in the 'Chips Act' also enable greater subsidies for projects from European manufacturers such as Infineon, STMicroelectronics or Bosch," says Jan-Peter Kleinhans, Head of Technology and Geopolitics at the New Responsibility Foundation, on It remains to be seen which companies and which projects will ultimately get the go.

European industry, especially the automotive industry, is more likely to benefit from the new mega fabs, i.e. the huge factories that could soon be springing up in Europe. VW, Mercedes, BMW & Co. recently suffered from the lack of chips and had to cut production at times. The "Chips Act" is also aimed at the key industry, the car manufacturers, which urgently need high-quality chips on their way to electromobility, explains semiconductor expert Marcus Gloger from the strategy consultancy PwC Strategy&.

Asia invests significantly more in the semiconductor industry

Industry observers doubt that Europe's chip industry will be able to catch up with the competition from Asia and increasingly from the USA. Because completely different sums are spent there to promote the chip industry. China puts over a trillion dollars into funding programs for technologies such as the semiconductor industry. South Korea is also not stingy: The country is offering chip makers tax incentives of 450 billion dollars by 2030.

And the USA is also attracting semiconductor manufacturers with lavish subsidies. The Biden government recently passed the "Chips for America Act" with investments of 52 billion dollars by 2026. There are already initial settlement successes: TSMC wants to build a mega-fab in Ohio for 12 billion dollars. Next door, Intel is planning two $20 billion factories. The project could be expanded to $100 billion. Up to eight Intel factories could be built in Ohio.

European "Chips Act" is not enough in the long term!

Europe's chip industry has to invest billions so that it doesn't lose touch with Asia and the USA. According to the electronics association ZVEI, just to maintain the current market share, production capacities in Europe would have to be doubled by the end of the 2020s. "45 billion is just a start," says Silicon-Saxony CEO Bösenberg. In the long term, the "Chips Act" alone is not enough to strengthen the European semiconductor industry. "At the same time, Europe must pursue the ambition of creating European industrial champions in key sectors that require masses of high-performance chips." This is the only way the subsidies would pay off in the long term.

Some industry experts consider Brussels' strategy of promoting smaller chips with a size of less than ten nanometers to be wrong. ZVEI Managing Director Wolfgang Weber considers this focus to be too narrow. He goes past the needs of the European customer industry. "Europe must strengthen its competence in all structural sizes."

Promotion of micro-chips "futile project"

Tech expert Kleinhans from the New Responsibility Foundation even speaks of a "hopeless project". There is currently not a single company in Europe that is dependent on such microchips, he said in the news magazine "Spiegel". Instead, there is a huge demand for chips in sizes from 10 to 28 nanometers.

Expert Gloger from PwC Strategy& sees it differently: If the leading chip giants produce in Europe, they would also bring the new modern two-nanometer technology to Europe. European semiconductor manufacturers, who previously covered the market with larger chips, would then also benefit from this know-how transfer. Gloger: "The Chips Act has numerous advantages for the industry."

At the moment nobody believes in the threat of overcapacity in the industry if large numbers of chip factories are built the day after tomorrow. The chip shortage in the automotive industry and in other areas will persist well into 2022, predicts the outgoing Infineon boss Ploss. The demand for semiconductors is likely to continue to rise rapidly in the coming years with increasing digitalization. According to Gartner analysts, the chip industry will increase sales by 100 billion to 600 billion dollars in 2022. In 2030, the trillion mark could be broken for the first time.

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Global Economy

Spotlight on 2023: S&P 500 and the Significance of the 4400 Level

In our past exploration of the financial landscape of 2023, we delved...

Global Economy

AI and Data Analytics Drive Efficiency in Money Laundering Detection

BIS Innovation Hub Turns to Tech for Money Laundering Detection The BIS...

Global Economy

Russell 2000 Gains Momentum as Tech Stocks Outperform Value

Tech stocks have dominated the equity markets in recent months, surpassing value...

Global Economy

Crypto Exchange Bybit Announces Exit from Canadian Market Amid Regulatory Changes

Regulatory Shifts Prompt Bybit's Strategic Withdrawal from Canadian Crypto Market