As painfully as the Covid-19 pandemic made us aware of the fragility of global supply chains – the fact that just under ten percent of the chips produced worldwide currently come from the European Union is not due to the coronavirus.
Because there has been a constant migration of production capacities to Asia since the 1990s. There are many reasons for this, not all of which have to do with the pandemic – such as the increased costs for manufacturing semiconductors and the comparatively low wage level in Asia. There are also considerable government subsidies there.
In September 2021, EU Commission President Ursula von der Leyen presented the “EU Chips Act”. The draft law is intended, among other things, as a framework to summarize the national strategies of the member states. According to EU Internal Market Commissioner Thierry Breton, the Chips Act should be based on three pillars: research and development, expansion of European production capacities as well as international cooperation and partnerships.
From the perspective of the semiconductor industry, the design is a success. After all, the production of chips is not only about meeting demand, but also about geostrategic interests. Chips are at the heart of almost all products today, from industry to transport and communication to private households.
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In view of the increasing competition for leadership in technologies such as artificial intelligence (AI) or the Internet of Things, the EU should reduce the vulnerability of the supply chain by expanding its own capabilities and capacities to manufacture advanced semiconductors – in the interests of its own strategic sovereignty.
Germany must give the EU plans more support
According to the European Center for Digital Competitiveness (ECDC), there is another factor: How governments shape the digital transformation of their economies will “have a decisive impact on how competitive and prosperous their countries will be in the coming decades”. According to an ECDC study, Germany has now slipped to the penultimate place in Europe in terms of its digital competitiveness.
Because of its importance as the strongest economy in the European Union, Germany must urgently and increasingly rely on digital sovereignty in order to be able to give more support to the ambitious plans of the EU Commission. The coalition agreement of the new federal government gives cause for hope – as does the approach of the Ministry of Economic Affairs, which has already selected a large number of projects in the field of microelectronics that are to be funded as part of a European project.
Focusing on open standards, interoperability and portability is the right approach to making progress on the road to sovereignty. In this context, however, it is also necessary for the EU to increase financial support for key technologies such as AI, quantum computers, cybersecurity and robotics. These technologies all have one thing in common: They are based on modern semiconductor technology.
According to a study by the consulting firm Kearney, state-of-the-art chips already account for a good 20 percent of total EU chip requirements – companies based in the EU recently paid 44 billion euros a year to buy such chips. So it’s a huge market, especially since the share of ultra-modern semiconductors will grow to over 40 percent by 2030 and the total requirement for chips is likely to almost double.
Expand the funding instruments
The EU has set itself the goal of producing a fifth of global chip production in its 27 member countries by 2030. This would be doubling compared to today. In order to actually achieve the desired mass production, it is necessary, according to the Central Association of the Electrical Engineering and Electronics Industry, to expand the range of funding instruments in the association of states. This involves initiatives that are important for semiconductor projects, such as the Important Project of Common European Interest or Horizon Europe.
However, according to the central association, there must also be financial support for companies that want to expand their semiconductor production capacities and build new plants. Otherwise it will be difficult to achieve the target set by the EU Commission. The lack of funding in this area so far is a serious gap in the European strategy. It must be closed so that the Member States can actually benefit from short, stable supply chains and thus greater independence.
In view of the tasks to be mastered, the planned EU Chips Act as well as the Digital Compass 2030, which is not least about building secure and efficient infrastructures, are more important than ever before. While the digital compass sets the course, the EU Chips Act goes one step further and specifies the framework for successful semiconductor production in the EU.
In addition to target descriptions and the necessary investments, the proposed law also defines a framework for international cooperation. The production of advanced semiconductors requires a whole range of raw materials such as sand and the silicon it contains. With all concentration on one’s own capabilities, international supply chains will therefore also be indispensable in the future.
Promote the professional attractiveness of the branch
In addition, it is also about the necessary research strategy: Successful basic research is essential for the production of future generations of semiconductors. The Chips Act highlights, among other things, the German Fraunhofer Society. Together with other European research institutions and technical universities, Europe seems to be well equipped to provide the scientific foundation for chip production.
In this context, it is also important to promote the professional attractiveness of the semiconductor industry in order to be able to attract new talents and specialists. The targeted communication of European success stories should also contribute to this. In order to make the desired strategic sovereignty a reality, the EU Commission, but also the German government, must rely on lighthouse projects.
Only in this way can they underpin their claim to a technological leadership position. If you combine the short distances of a deepening regional semiconductor production with staying power, your own investments and international cooperation, this would be an ideal environment for successful digitization projects, as provided for in the coalition agreement of the new federal government.
The author: Christin Eisenschmid is Germany boss of the US semiconductor manufacturer Intel.
More: Europe wants to fight the chip shortage – and is blocking itself.