semiconductor chip and EU flag

View from Brussels: Fishing for chips

Image credit: European Union

The European Union unveiled a plan this week to quadruple the production of microchips by 2030, as part of a €43 billion industrial strategy. History suggests that it won’t work but a number of new factors might break the EU’s losing streak.

Microchips are the latest technology to be the focus of a ‘Made in the EU’ drive by Brussels, which has already pumped millions of euros into batteries, quantum computing and the cloud. 

According to a new strategy published on 8 February, the EU will allocate around €11 billion of public funding to develop new semiconductor technology and ramp up the production of chips within its borders.

More than €30 billion in further investment from the private sector is being targeted by the architect of the ‘EU Chips Act’, the European Commission, which is the EU’s executive branch.

A miniscule 9 per cent of global microchip production is currently located in the EU, and the goal of the Chips Act is to increase that to 20 per cent by 2030. If achieved, this would still only be a slight clawback of the 40 per cent that the EU could boast back in the 1990s.

It is not the first time that the EU has sought a lucrative slice of the chips market, which is currently dominated by Taiwan and, to a lesser extent, South Korea. Back in 2013, the Commission set a 20 per cent target and aimed to mobilise €100 billion in investments. Neither of those ambitious goals were realised.

Other industrial strategies that have covered specific sectors or the wider picture in general have also struggled to meet their goals, as a mixture of over-ambitious targets and vested national interests have knocked back efforts to make the EU a global player worth reckoning with.

But the EU has good reason to persevere with its quest, as an ongoing global chip shortage is having a knock-on effect on several of its key industries, and a turbocharged domestic industry could do wonders for its green and digital transition goals.

Industry commissioner Thierry Breton said that “securing the supply of the most advanced chips has become an economic and geopolitical priority.” Breton has in recent months done his best to convince some of the market’s biggest players to set up shop in Europe.

Those overtures have not paid off as yet, although the likes of Intel have suggested that they would be willing to pump billions into the EU industrial ecosystem if the conditions were right. Those conditions may well now be right.

After all, big state-aid-driven cash injections into the e-mobility sector and plans for giant battery ‘gigafactories’ have started to pay off. Sweden can boast its green-energy-powered Northvolt, while Elon Musk’s Tesla is setting up a base in Germany.

However, Europe is not the only one promising cash for chips. US President Joe Biden’s administration has put $52 billion in federal funding on the table, with states already lining up to invest more on top of that.

South Korea is also planning hundreds of billions in investment over the next decade, both to preserve and increase its share of the market. Europe cannot compete in sheer spending power, so will have to make sure its industry is tailor-made.

That is the view of the Mechanical Engineering Industry Association (VDMA), which insists that “the needs of mechanical engineering - one of Europe's largest industrial sectors - must be taken into account.”

VDMA adds that the size of semiconductors must be taken into account when planning investments, as not all applications require the same chips. The automotive sector, hard hit by the global shortage, uses larger components for the time being.

But the EU plan is going big on smaller chips, and EU competition boss Margrethe Vestager is insistent that the investments are not earmarked for current shortages or problems. Rather, they should be a safeguard against future problems.

EU governments will also probably have to make peace with the fact that only big spenders like Germany, France, Italy and Spain will be able to mobilise the kind of money to secure any meaningful part of the supply chain.

Smaller nations might be able to secure scraps but if the fledgling battery industry is anything to go by, that will be the limit.

The proof of these particular chips will be in the eating. If the EU’s new plan can lure one of the big fish to Europe and if the Commission’s competition officials are amenable to a bit of extra state aid here and there, the industry could take off.

Sign up to the E&T News e-mail to get great stories like this delivered to your inbox every day.

Recent articles