The European Union (EU) introduced its first Chips Act in September 2023 to establish a framework for strengthening the semiconductor ecosystem in the region. Member states have increasingly been calling on the EU to strengthen the regulation to advance the region’s semiconductor production. The European Chips Act was established to bolster Europe’s competitiveness and resilience in semiconductor technologies and applications and help achieve both the digital and green transition. Approximately one trillion microchips were manufactured worldwide in 2020, of which the EU contributed a 10 percent share.
There is a rapidly growing global demand for microchips, which are needed for a variety of industries, including automated cars, cloud, Internet of Things, connectivity, space, defence, and supercomputers, and are key to a digital transformation. The European Commission’s (EC) Chips Survey revealed that industry experts expect the demand for chips to double by the end of the decade. However, the world has experienced a shortage of semiconductors, as demand is outpacing the expansion of the advanced semiconductor manufacturing sector.
During her 2021 State of the Union speech, EC President Ursula von der Leyen presented the European Chips strategy, which included production as well as advancing EU research, design, and testing capacities. The first Act mobilized $46.4 billion in public and private funding for the microchip industry.
In March this year, nine EU member states launched a Semiconductor Coalition. Austria, Belgium, Finland, France, Germany, Italy, Poland, Spain, and the Netherlands, together, issued a statement agreeing to reinforce their cooperation to strengthen Europe’s competitiveness and strategic autonomy in the semiconductor sector. The coalition will support research, expand production capacity, and foster a highly skilled workforce. Later in March, members of the European Parliament called on the EC to establish new legislation to advance the EU’s semiconductor industry and to expand the regulation to cover advanced technologies, such as AI chips.
A letter written by representatives of three major factions in parliament and signed by 54 lawmakers stated, “Recent geopolitical developments have shown that Europe cannot take continued access to advanced technologies for granted.” It added, "We must take active steps to make the EU attractive as an R&D, production and investment location.” The letter criticised the existing Chips Act for being “too slow”. It also referenced the growing tensions between the U.S. and China and the importance of strengthening the EU’s chips industry.
Lawmakers were encouraged to write the letter after European semiconductor firms called on the EC to produce a European Chips 2.0 Act, with a focus on chip design, materials, and equipment, in addition to manufacturing. The call came from a meeting between major industry representatives, including those from NXP, STMicroelectronics, Infineon, and Bosch, and European lawmakers in Brussels. The industry group ESIA – representing chipmakers, and SEMI Europe – representing the broader industry, promised to call on the EC digital chief Henna Virkkunen to develop new legislation. SEMI said in a statement that any new initiative should “decisively support semiconductor design and manufacturing, R&D, materials and equipment.” Industry members also called on the EC to provide subsidies to suppliers to establish Europe as a more competitive market.
The Economy Minister for the Netherlands, Dirk Beljaarts, stressed the need for a more targeted approach in any new legislation. “We need to allocate funds,” Beljaarts said. “Both private and public funds to push the sector, also to make sure that the trickle-down effect takes place, and that (small and medium-sized) companies also benefit,” he added.
Progress from the first Chips Act has been slow. Although it did encourage greater investment in the sector, it failed to attract advanced chipmakers to the market. In addition, while most financing was provided by member states, projects required EU approval to move forward.
In September last year, the U.S. microchip producer Intel announced plans to postpone the construction of a factory in Germany for at least two years, which was a huge blow to the industry. Intel was reportedly planning to construct two chip factories in Saxony-Anhalt, near Berlin, with an investment of around $33 billion, which would create roughly 3,000 jobs. The German government had promised public financing of $10.7 billion for the project.
Intel is recovering from losses, which have forced the company to cut spending in recent months. The firm also announced plans to cancel its next big AI chip and keep it “as an internal test chip only without bringing it to market.” Intel co-CEO Michelle Johnston Holthaus recently said that the plan is to “simplify our roadmap and concentrate our resources.”
The EC has not yet provided detailed plans for the next steps for the semiconductor industry, but it said it intends to launch five packages this year to boost European investment, including in AI. Meanwhile, Europe’s microchip companies will be expecting big changes that respond to recent advances in technology, as well as the current geopolitical environment, to make Europe more competitive.
By Felicity Bradstock for Oilprice.com
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