Is the European plan too late?
The chip shortage revealed how dependent the world is on semiconductor manufacturers in Asia, with the vast majority of chips produced by TSMC in Taiwan alone.
Among those seeking to reclaim a share of this market is the European Commission (EC), which in February announced a law on chips.
The EC will inject 43 billion euros of public and private investment into the European semiconductor industry. Among other things, the Commission hopes to increase the region's share of global chip manufacturing from less than 10% to 20%.
But can Europe really catch up with the rest of the world?really catch up with the rest of the world?
First of all, it's worth noting that not only is the EU currently lagging far behind in chip production, it's also facing major investment elsewhere.
China has injected $33 billion, in subsidies alone, into its own chip manufacturing industry by 2020. South Korea also plans to spend nearly half a trillion dollars through support schemes, tax incentives and other measures over the next decade.
According to GlobalData analyst Anisha Bhatia, if Europe and the USA, which are also aiming to increase their market share in this field, are to be truly competitive, considerable sums are needed, from both public and private sources.
But it's important to spend them, she argues, for geopolitical and commercial reasons, as Asia currently totally dominates the semiconductor industry.
"There needs to be a bit more balance," she argues.
The problem is that Europe is lagging behind on several fronts, and not just chipmaking.
There are also relatively few companies in the EU designing new chips for use in technology products. This is in stark contrast to the USA, which already has a significant semiconductor design sector. American companies are the first to determine which chips will actually be manufactured.
It makes little sense to spend huge sums of money on manufacturing capacity in a region as expensive as Europe for this sort of thing, without having more control over chip design," explains Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.
" I'm not sure it's the right strategy, to be honest," she says, referring to the chip law: " We should be spending more money on design."
This sentiment is backed up by an account from the German think tank, Stiftung Neue Verantwortung (SNV), which last year published a policy brief on the lack of semiconductor manufacturing in Europe. The report suggests that, due to the scarcity of European-designed chips, any new chip manufacturing plant in the region would have to seek orders elsewhere, particularly in the USA.
" Why would U.S. companies without semiconductor manufacturing capacity choose to produce their chips in Europe and not in South Korea, Taiwan or the United States? " the report asks.
There are other issues as well. Chip manufacturers are proposing smaller and smaller " node sizes," currently measured in nanometers (nm), to indicate ever-increasing technical advances in their manufacturing processes.
In addition, semiconductors are manufactured on large disks called " wafers ", which are then divided into thousands of smaller pieces, the chips themselves.
Over time, the size of these wafers has increased to enable more chips to be manufactured simultaneously. Today, state-of-the-art chips are generally manufactured on 300 mm wafers," says Koray Köse, analyst at Gartner.
Although Europe has some production capacity for 300 mm wafers, it lags far behind the USA and Asia.
This leads to the question of what kind of chips Europe should choose to produce and why, as it is currently behind on everything and has to decide its battles.
"There is no Apple, or Foxconn, production site in Spain that would consume consistent volumes of 300 mm wafers," says Köse.
European industry, in general, doesn't need many high-end chips under 10nm, says SNV's Julia Hess, who adds, " Demand in Europe is mainly focused on industrial and automotive needs, and this type of chip doesn't rely on advanced manufacturing. "
In theory, Europe could try to improve its ability to produce older, larger chips.
But this strategy would not be easy to implement either, due to equipment constraints and the fact that many countries around the world, including those with much lower costs, are trying to do so as we speak.
It's also worth noting that current chip production headaches, while still ongoing, are beginning to dissipate. A study by Gartner suggests that there will once again be a global chip surplus in around two years' time.
It's not that Europe can't improve its position in the semiconductor industry, but these analysts tend to agree that reacting to the recent shortage by trying to stimulate manufacturing alone would not be a simple or wise decision.
And as Jan-Peter Kleinhans, also of SNV, says, trying to boost chip production in Europe to protect the automotive industry from future supply shocks is unlikely to be effective, since the industry will inevitably continue to rely on global supply chains.
" A modern car needs hundreds of different chips from countless factories around the world," he explains. " How does sourcing a percentage of these chips domestically increase your resilience to supply disruptions? "
Instead, he suggests that carmakers and other European industries make their supply chains more resilient by making them more transparent and stockpiling chips for the next crisis.
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