Chips for change
Each month, Digital Bulletin analyses one of the digital policies that countries are enforcing with the goal of regulating the online world. In this issue, we look at the European Union’s Chips Act
Chips power the world. As technology is increasingly integrated into every aspect of our lives, semiconductors have become an in-demand commodity. From computers to cars and home appliances, chips are fundamental to most people’s day-to-day activities. But what happens when they are in short supply?
Over the past year, there has been a global semiconductor shortage. The semiconductor industry has been unable to meet the chip demand due to the knock-on effects of the pandemic and the surge in demand for electronics that followed it. Across Europe, production lines in a variety of sectors are now working at a reduced rate because of shortages and delivery delays.
“With the devices and the world as a whole getting connected, as they say, chips are the oil of the 21st century,” says Madhav Durbha, Vice President, Supply Chain Strategy, Coupa Software. “This coupled with the pandemic induced disruptions to the semiconductor supply chains explains the interest of the nations in a race towards chip dominance.”
To address this issue, the European Union (EU) has announced a new piece of legislation that aims to reduce the continent’s reliance on Asian manufacturers by increasing Europe’s production of semiconductors. The Chips Act will boost chip research, production capacity and international cooperation, and could establish a dedicated European Semiconductor Fund.
But this is not an ambiguous goal. The EU has set a clear target of increasing its share of the global semiconductor market to 20% by 2030. In order to reach this goal, the European Commission will provide $160 billion of its COVID-19 recovery fund to tech projects on the continent.
“Semiconductors are at the centre of strong geostrategic interests, and at the core of the global technological race,” says Mark Benson CTO at Logicalis UK&I. “This has led to many global superpowers securing their supply in the most advanced chips as they understand it will increase their capacity and capability to act and drive their nation’s digital transformation.
“This act is projected to propel the EU to the forefront of innovation, with the EU members accounting for at least a fifth of the world market by value of innovative and sustainable semiconductors”.
The EU’s Chips Act follows the example of the US’s Innovation and Competition Act. This bill pledges $54 billion out of the total $250 billion to fund semiconductor production within US borders, pouring money into research, design and manufacturing initiatives, with the goal of outpacing China’s capabilities.
“Both the EU and US are reacting to their declining share of semiconductor production as Asian countries have gained ground with large government subsidies to chipmakers,” says Linley Gwennap, principal analyst at The Linley Group. “With a more level playing field, I would expect even Asia-based chipmakers such as Samsung and TSMC to consider building fabs in Europe.”
If that is the goal, it seems to be working. The EU’s announcement has coincided with the opening of chipmaker Infineon’s new €1.6 billion chip plant in Europe and last July TSMC’s chairman Mark Liu told shareholders at the company’s annual general meeting that it was considering building its first European semiconductor plant in Germany. Moreover, last September Intel also announced its intentions of investing $95 billion in European chip-making facilities.
Of course, nothing is as simple as that. Although these announcements and the EU’s legislation are great news for the chip industry, the target is high, and it will take time and collaboration between all the players involved.
“These things don’t happen quickly — building capability and capacity in Europe will take time,” Durbha explains. “It will also take a significant amount of capital investment and ramping up tech skills for these regions to truly lead on the production of chips. And the crux of the matter is that nations such as Taiwan and South Korea already have a formidable advantage in this area and the knowledge of how to do it.
“To ensure the success of these programmes, Europe will also need to find ways to bring together companies within the semiconductor and major customers across the value chain to help launch joint ventures, collaborative R&D efforts and technology partnerships. Government funding and support by ensuring favourable conditions to business growth and investments will go a long way. Collective power is much stronger than any one company or industry fighting it alone. It will take collective intelligence to make meaningful impact.”
