By: Jillian Cota
Semiconductors are the platform technology of the 21
st century, underpinning critical technologies ranging from medical devices to defense systems. Recognizing their strategic value, nations and regions around the world are making significant investments to retain and upgrade their own strengths and capacities within a globalized semiconductor industry. The European Chips Act reflects a strategy in this context to keep the EU in the game.
This competition is taking place while the industry itself is in flux. The semiconductor industry is today made up of a complex global network of firms that design chips or make them, as well as those that supply the technology, materials, and equipment to do so. The outsourcing of semiconductor manufacturing to East Asia is a significant feature of this network. Notably, contract manufacturers in Taiwan account for
more than 60 percent of total global foundry revenue in 2021. Given the geopolitical uncertainties in East Asia, some
experts have raised questions about the vulnerability of the industry.
The COVID-19 pandemic has further exposed the tenuousness of the semiconductor industry’s global structure. Lockdowns and border closures implemented to halt the spread of the virus have interrupted supply chains, disrupting the global economy and revealing the risks of relying too heavily on the offshore manufacture of computer chips. Recognizing the severity of the situation for Europe, ASML—a leading Netherlands-based chip equipment supplier that supplies Intel, Samsung, and others—
stated recently that “if no action is taken, the European semiconductor manufacturing capacity will fall below 4%, making it virtually irrelevant on a global scale.”
In February 2022, European Commission President Ursula von der Leyen announced
the European Chips Act, which adds €15 billion to an existing €30 billion in public investments to create new STEM-focused programs, attract new talent to Europe
, and build new infrastructure. These actions are part of a strategy to support a thriving European semiconductor industry ecosystem, averting future shortages of semiconductors, and promoting investment into the European semiconductor industry.
Through this legislation, the Commission hopes to:
- Increase EU resilience to supply chain disruptions like those created by building more domestic capacity.
- Make Europe a long-term industrial leader in semiconductors, increasing its global in manufacturing from 9% to 20% by 2030.
Areas of Focus:
The European Chips Act focuses on
five specific areas:
Research and Development: The announcement by the European Commission President calls for further allocations of funds for research and development (R&D) to keep up with global competitors. To augment the level of research, the Commission will further invest €3.3 billion in two current programs: €1.65 billion to the “Horizon Europe” program and €1.65 billion to the “Digital Europe” program. The "
Horizon Europe'' program focuses on pre-competitive research, development, and innovation in the area of semiconductors while, “
The Digital Europe” program looks to make digital domains and technology widely available for all businesses and the general public to maximize performance in key industries.
“From the lab to the fab”: The European Chips Act also calls for more effectively translating research into industrial innovation and market-feasible products.
Experts emphasize that Europe must bridge the gap between excellence in laboratory research and onshore manufacturing to sustain leadership in semiconductors and other advanced technologies.
Industry Production: The European Chips Act recognizes that advanced production facilities come with huge up-front costs. Europe is looking to host
“first of its kind” facilities through the creation of Integrated Production Facilities, which are factories that design and produce semiconductor components that serve the European market and through Open EU Foundries for chip design, which are facilities that design and produce components for other industrial actors such as medical devices and computer programming. The EU Commission sees Europe lagging in chip production, so if the EU can accomplish building these Integrated Production Facilities and Open EU foundries,
the EU commission goal of increasing European chip production from 9% to 20% of global production by 2030 becomes significantly more reachable.
Local Support: European policymakers see the need to support the local skill base and the network of smaller, innovative companies and start-ups as a part of their strategy to grow their semiconductor and high technology ecosystems. To do this, the European Commission has established the “
EU Chips Fund” which will contribute €2 billion to create a more competitive market for semiconductor start-ups to participate in and address skill shortages. Additionally, the Commission wants to help in the retention of employees that have the skills that these start-ups need to be successful and to find industrial partners for these start-ups to collaborate with.
Overhaul the European Supply Chain: The strategy also seeks to advance the European Union’s supply chain. Within the EU, the Commission wants to encourage Member States and industry stakeholders to coordinate efforts towards an improved European supply chain for semiconductors.. To enable a rapid response to the current shortages, the Commission has created a list of
recommendations to the Member States. Along with streamlining policies of member states, Europe is also looking to build partnerships with the United States and other nations to create a more resilient global semiconductor network.
Global Commitment to Semiconductors:
Europe’s strategy to retain and strengthen its semiconductor industry comes at a time when other nations and regions are also upping their game. The
United States Innovation and Competition Act of 2021, passed by the Senate, and the COMPETES Act, passed by the House, call for substantial investments to incentivize domestic manufacturing and R&D. Alongside, the proposed
CHIPS for America Act seeks to re-shore semiconductor production. China’s updated Five-Year Plan (2021 – 2025) is focused on strengthening China’s economic foundations through the support of technology and innovation, and the semiconductor industry is a key focus of this effort. South Korea is also investing in supply chains and technological R&D. The investments and policy actions of these and other countries reveal a growing recognition of the strategic importance of the semiconductor industry in shaping the economic growth, competitiveness, and security of nations and regions.
Jillian Cota is a research intern with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, DC.
The Perspectives on Innovation Blog is produced by the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
