Billions for the industry: Will the European Chips Act secure Europe’s semiconductor future?

Following the publication of its balance sheet at the end of May, Nvidia’s share price surpassed the magical 1,000-dollar mark. The company is currently worth almost three trillion dollars, making it one of the three most valuable companies in the world in record time. Data centers, companies, governments – everyone wants generative Artificial Intelligence (AI) and Nvidia supplies the chips. At times, the chips were so expensive and sought-after that they were delivered in armored transporters. They are designed in the US and manufactured in Asia. What role does Europe play in the competition for this important future technology? And will the billions in subsidies from the European Chips Act be enough to secure the production and research of semiconductors in Europe?

Over many years, production and investments of semiconductors have been relocated to Asia. Driven by increasing production of consumer electronics and smartphones, around 80% of all chips are now manufactured in production facilities, known as “fabs”, in Asia.  The remaining 20% of this capacity is shared approximately evenly across Europe and the United States. Both regions now recognize that they need to increase domestic production – not just to secure supply chains but also because the development and production environment always gives rise to an innovative network of suppliers, research and startups, which can be an engine for further innovations.

The objective of the EU: double the market share by 2030

Therefore, from the European perspective, it was high time to create an own initiative so as not to fall behind in the race. For this reason, the EU adopted the Chips Act, which is to mobilize investments of € 43 billion from the member states to double the European share in the global value creation by 2030 in accordance with the EU’s objective. To improve collaboration, some 30 regions from 12 EU member states joined forces last year. ESRA, as this alliance is called, is another important and right step towards strengthening Europe’s position in the semiconductor industry.

To prevent competitive conflicts, only cutting-edge technology not yet available in Europe is eligible for subsidies from the Chips Act, e.g. in the growth area of highly developed logic chips with the smallest possible distances between the individual transistors. Currently, only the Intel fab in Ireland manufactures 4-nanometer chips, while the technology leaders in Asia already have large capacities for 3-nanometer chips. It is possible to fit 200 billion transistors on a piece of silicon the size of a thumbnail. According to Moore’s law, named after Intel co-founder Gordon Moore, the number of transistors in a circuit doubles approximately every two years. More transistors means more computing power and more data processing in a short time. Without advances like these, fast Internet, blockchain and AI would be impossible and data processing would take years.

First successes: Intel and TSMC build fabs in eastern Germany

One year after the Chips Act entered into force, we are already seeing the first successes. In Germany, new fabs are being built by Intel in Magdeburg for its latest technology measuring less than 2 nanometers and by Taiwanese company TSMC in Dresden. TSMC is building the fab in collaboration with Bosch, Infineon and NXP; it is the industry leader’s first fab in Europe. Are these first successes the signals of a turnaround? After all, STMicron and GF are also planning a new factory in France.

On the one hand, the decades-long fading of market share for production in Europe seems to have stopped. According to the estimate of analysts and professional organizations, the multi-billion investments will prevent the current market share of just under 10% from going down further. On the other hand – contrary to the hopes of the European Union – it probably also will not go up before the end of the decade. After all, in the international competition, it is apparent that Europe has less (financial) power compared with the United States and Asia.

Even more billions: United States and Asia also investing

With US$ 53 billion in direct funding, US$ 75 billion in loans and other tax breaks, the U.S. CHIPS Act is making a stand. The United States is also the leader in important fields such as chip design and artificial intelligence research. Asia is also subsidizing semiconductors more strongly than Europe. In China, the state investment fund has been supporting its semiconductor industry since 2014 with a total of € 70 billion to reduce dependence on the United States. Taiwan, Korea and Japan are also subsidizing their local industries with similar multi-billion programs.

What are the European Chips Act’s prospects of success in light of these figures? At first glance, the EU has less to offer financially; the member states are also bound by strict subsidy regulations. However, there are European success factors that provide hope.

Advantage of Europe: education, research and systemic innovation

One such advantage is an education system that has evolved over history and has been tried and tested over the decades. Europe has a great deal of potential in STEM subjects and the struggle to find bright minds does not seem quite as intense as in the United States, for example. The same applies to the many skilled workers trained practically and to a very high standard in the dual system that is practiced in some parts of Europe.

Europe also has a diverse research landscape that has grown over decades. The institutions at universities, companies and private enterprises are traditionally very well networked. Experts consider European research to be outstanding, especially in the future fields of quantum computing and neuromorphic computing. The world-leading research institute for semiconductors and their production is called imec and is located in Leuven, Belgium. Imec has been collaborating internationally and between companies for four decades. With a sense of mutual trust, various manufacturers share their latest research for the benefit of all. Experts assume that the highly specialized semiconductor industry will, in the future, be able to create the necessary systemic innovations and enable further progress only through this kind of intensive collaboration. One important component of this strategy are the recently announced pilot lines.

Top international groups doing research in Europe

The leading position of imec underscores the significance of Europe as an internationally renowned research location. Apart from the good scientific preconditions, international companies and their employees also appreciate the high quality of life, democratic tradition and cultural diversity of Europe. Apple, for example, is investing € 2 billion in a new Chip Design Center in Munich and Tim Cook praised his team of engineers in Munich as innovative world leaders. Merck is also expanding its research activities in Europe and will invest € 1.5 billion in Darmstadt by 2025.

High-tech European companies embedded in every chip

Even if no European companies are included among the world’s ten largest chip manufacturers, every modern chip factory contains European high-tech. Companies such as ASML, Schott, Zeiss, Wacker, Trumpf, ASM, and Aixtron as well as Merck have globally unique expertise in their fields. The objective of the investments associated with the EU Chips Act is to preserve this technological edge.

Apart from having good research conditions and global technology leaders, Europe has a high level of competence in the field of energy efficiency. As a result of the quick growth in the use of artificial intelligence, companies are now increasingly focusing on the power consumption of their chips. This trend will continue to intensify in the coming years. European manufacturers such as Infineon have so far had a technological advantage in energy-saving systems.

EU must also invest in artificial intelligence

It is therefore worth taking an expanded view at the existing strengths of Europe and its semiconductor industry. The European Union would be well advised not to exclusively use the funds from the European Chips Act to subsidize plants but rather to focus on its own strengths and promote them primarily. At the same time, deficits in chip design and bureaucracy hurdles, for example, must be eliminated. Intel reportedly needed a truck to deliver the approval papers for its Magdeburg fab.

Europe also needs its semiconductor expertise to keep pace with the future topic of artificial intelligence. Europe is already well positioned in the field of research and received the best possible score of 1.0 from AI guru Jörg Schmidhuber. The social change that will be brought about by this future technology is powerful. Without them, other important European projects such as the energy transition or the Green Deal on climate protection cannot be achieved.