Will the EU be able to produce its own semiconductors and chips?



Note: this is a machine translation from the original Russian text

The European Commission has submitted amendments to the Chip Law aimed at expanding the capacities involved in the production of semiconductors. It is planned to allocate about 34 billion euros for project financing and regulatory incentives.

Industry experts reacted positively to the news, although they noted that at least in the short term, the authorities will continue to attract foreign players, rather than intensively create their own production facilities.

According to the amendments published back in February 2022, Europe intends to solve the problem of a shortage of semiconductors in the context of a global supply chain crisis and geopolitical turmoil by expanding the capacity of its own enterprises. At the same time, Brussels' plans coincide with the EU's long-term development goals, implying an expansion of the level of European technological sovereignty. As part of this goal, Europeans aim to make up 20% of the value of the global semiconductor manufacturing market by 2030.

Of the planned funding, 11 billion euros will be allocated in the form of public investments for the Chips for Europe initiative. It is also expected that the EU authorities and member states will create an investment pool, known as Chips Fund, worth more than 2 billion euros to support startups, scalable and other companies integrated into the semiconductor supply chain.

However, these amounts only seem exorbitant, in fact, everything is not quite so. This area is one of the most high-tech and, therefore, expensive. So the German Bosch alone intends to invest in 2022 not a little 400 million euros in the production of microchips, most of which will be intended for the automotive industry. And microchips are needed in almost all industries today.

In addition to these initiatives, the European Investment Bank (EIB) will cooperate with the Commission to provide equity financing to support scalable enterprises, small and medium-sized businesses that develop and commercialize semiconductor technologies. The chip Law will also provide a number of incentives to firms that eliminate untapped gaps in the market, such as logic chip foundries.

It is expected that companies will receive priority access to pilot financing lines and will see that their requests and needs are quickly answered by the authorities.

The development of the Chip Law will allow the EU to improve monitoring of the availability of semiconductors, create tools to solve current and future problems of their shortage.

The core of this mechanism will be the European Group of Experts, which will act as a coordination platform between Member States to advise and assist them in the event of shortages and other market failures. Participants will have the opportunity to coordinate the procurement of critical semiconductors at the level of the entire Union.

A number of experts note that the actions of the Europeans are due not only to problems with logistics, but also to the growing confrontation between the United States and China. Moreover, not only in the EU have taken care of the production of semiconductors. South Korea plans to radically increase its investments up to $450 billion by 2030 to increase the country's chip production capacity.

The constant growth of demand plays its role against the background of the development and introduction of 5G technologies, artificial intelligence, cloud computing.

Brussels' initiatives are aimed, among other things, at creating a platform for the implementation of a project capable of competing with the main semiconductor manufacturers today – Taiwan, China, South Korea. The law will allow developing a stronger semiconductor ecosystem at the European level, increasing the advantages of the region's industry, as well as eliminating its disadvantages.

A base is being created for increasing research and development work.

However, a number of experts today agree that by 2030 the EU will not be able to create a truly competitive industry capable of producing advanced products with a five-nanometer technological process or less. Even despite increased funding and ongoing regulatory support.

For example, in 2021, the German Bosch opened a plant in Dresden for the production of power semiconductors on plates with a diameter of 300 mm. The company has equipped the facility with automated devices and integrated AI processes. Bosch produces special-purpose integrated circuits (ASICs) and technical processes from 130 nm to 65 nm, which is very far from the indicator of 5 nm.

However, the EU benefits from the local production capacity of the main semiconductors that power the manufacturing and automotive industries. Companies such as Infineon, NXP and STMicroelectronics already play a key role in deliveries.

Brussels also benefits from the presence of the Dutch company ASML, which provides key ultraviolet lithographic machines similar in characteristics to the products of Taiwan's TSMC.

Analysts emphasize that, given the complexity and high cost of implementing a full-fledged industrial semiconductor industry, the EU will eventually focus its efforts on attracting foreign firms to the region, rather than creating its own production cluster from scratch.

Skepticism about the prospects of such European import substitution was expressed back in the fall of 2021, when the coronavirus pandemic dealt a huge blow to global supply chains. The head of the European Union on Competition Issues, Margrethe Vestager, then said that the region would not be able to become completely independent of semiconductor production due to the large volume of necessary investments.

Judging by how much Europeans spend today on arms supplies to Ukraine, as well as on their own armies, we would venture to assume that Brussels simply will not have the necessary amounts for the production of high-tech microchips.