Is the European plan too late?

The chip shortage revealed how dependent the world is on semiconductor manufacturers in Asia, with the vast majority of chips produced by TSMC in Taiwan alone.


Among those seeking to recapture some of this market is the European Commission (EC), which announced a chip bill in February.
The EC will inject €43 billion in public and private investment into the European semiconductor industry. Among other things, the Commission hopes to increase the region's share of global chip manufacturing from less than 10 percent to 20 percent.


But can Europe really catch up with the rest of the world?really catch up with the rest of the world?

First, it should be noted that not only is the EU currently far behind in chip production, but it is also facing large investments elsewhere.
China has injected $33 billion in subsidies alone into its own chip manufacturing industry in 2020. South Korea also plans to spend nearly half a trillion dollars through support schemes, tax incentives and other measures over the next decade.

According to GlobalData analyst Anisha Bhatia, for Europe and the U.S., which also have ambitions to increase their market share in this area, to be truly competitive, considerable sums of money are needed from both public and private sources.
But it's important to spend it, she says, for geopolitical and commercial reasons, because Asia currently totally dominates the semiconductor industry.
" There needs to be a little more balance," she argues.
The problem is that Europe is behind on several fronts, not just chipmaking.


There are also relatively few companies in the EU designing new chips for use in technology products. This is in stark contrast to the United States, which already has a significant semiconductor design industry. U.S. companies are the first to determine which chips will actually be made.
It makes little sense to spend huge sums of money on manufacturing capacity in a region as expensive as Europe for this sort of thing, without having more control over the design of the chips, says Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.

" I'm not sure that's the right strategy, to be honest," she says, referring to the chip law: " We should be spending more money on design."
This sentiment is supported by an account by the German think tank, Stiftung Neue Verantwortung (SNV), which last year published a policy brief on the lack of semiconductor manufacturing in Europe. The report suggests that because of the scarcity of European-designed chips, any new chip-making facility in the region would have to look elsewhere for orders, particularly in the United States.

" Why would U.S. companies without semiconductor manufacturing capacity choose to produce their chips in Europe and not in South Korea, Taiwan or the United States? " the report asks.



There are other issues as well. Chip manufacturers are proposing smaller and smaller " node sizes," currently measured in nanometers (nm), to indicate ever-increasing technical advances in their manufacturing processes.

In addition, semiconductors are made on large disks called wafers, which are then divided into thousands of smaller pieces, the chips themselves.
Over time, the size of these wafers has increased to allow for the simultaneous fabrication of more chips. Today, leading-edge chips are typically made on 300mm wafers, says Koray Köse, an analyst at Gartner.

Although Europe has some capacity to produce 300mm wafers, it is far behind the US and Asia.
This leads to the question of what kind of chips Europe should choose to produce and why, as it is currently behind on everything and must decide its battles.
"There is no Apple, or Foxconn, production site in Spain that would consume consistent volumes of 300mm wafers," says Köse.


European industry, in general, doesn't need much in the way of sub-10nm peak chips, says SNV's Julia Hess, who adds, " Demand in Europe is primarily focused on industrial and automotive needs, and these types of chips don't rely on peak manufacturing. "
In theory, Europe could try to improve its ability to produce older, larger chips.

But this strategy would not be easy to implement either, due to equipment constraints and the fact that many countries around the world, including those with much lower costs, are trying to do so as we speak.
It's also worth noting that the current chip production headaches, while still ongoing, are starting to dissipate. A Gartner study suggests that there will be a global chip surplus again in about two years.
It's not that Europe can't improve its position in the semiconductor industry, but these analysts tend to agree that reacting to the recent shortage by trying to boost manufacturing alone would not be a simple or wise decision.
And as Jan-Peter Kleinhans, also of SNV, says, trying to boost chip production in Europe to protect the automotive industry from future supply shocks is unlikely to be effective, since the industry will inevitably continue to rely on global supply chains.
" A modern car needs hundreds of different chips from countless factories around the world," he explains. " How does sourcing a percentage of those chips domestically increase your resilience to supply disruptions? "

Instead, he suggests that carmakers and other European industries make their supply chains more resilient by making them more transparent and stockpiling chips for the next crisis.


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