EU directs €11bn toward European Chips Act to build homegrown semiconductor industry

Additional €43bn in the pipeline, but it's still chickenfeed, say critics

The European Commission has presented its European Chips Act with an initial investment of €11bn to strengthen research and development, and drive greater self-reliance in the semiconductor market.

The European Chips Act is a wide-ranging set of measures that aims to build strength in chip design and manufacturing, and is designed to bolster European competitiveness and resilience in semiconductors, as well as help to meet the EU's goals on digital transformation and environmental sustainability.

I don't think people realise how much investment chip fabrication requires

In particular, the commission wants to see greater research into cutting-edge technologies, such as development of chip manufacturing processes below 1nm scale, and the establishment of several "mega fabs" within the EU to produce chips for both local and export markets, which may be funded using public money.

European Commission president Ursula von der Leyen claimed in a statement that the European Chips Act will be a game-changer for the global competitiveness of Europe's single market.

"In the short term, it will increase our resilience to future crises, by enabling us to anticipate and avoid supply chain disruptions. And in the mid-term, it will help make Europe an industrial leader in this strategic branch," she said.

The key parts of the act comprise the Chips for Europe Initiative, through which €11bn will be made available to strengthen research, development, and innovation, plus a new framework to ensure security of supply by attracting investment and building new production capacities, including a Chips Fund to facilitate access to finance for startups, such as a dedicated semiconductor equity investment facility via the InvestEU fund.

However, the Commission said that it aims to eventually direct more than €43bn of public and private investments towards the effort by 2030, with the aim of allowing the EU to double its current market share of the global semiconductor market to 20 per cent by that time.

The EU Chips Act is a "strategic initiative that is central to European recovery and its long-term competitiveness," said EC executive vice president Margrethe Vestager at a press conference announcing the move.

She pointed out that the recent problems with semiconductor supplies had exposed the weakness of the European chip industry, and that industries in Europe are largely dependent on foreign supplies for the most advanced chips.

But Vestager said that the Chips Act is not about addressing the current shortages, but preparing for a future where it is estimated that European industrial need for chips will double within the next decade.

"We're not starting from scratch, because in Europe we are strong in design and strong in materials, and we are a world centre for chips research," she said, but added that Europe needed to invest more in research, and also in "bringing research to life" by bridging the gap more effectively from research to chip production.

The Chips Act was given a cautious welcome by some. Roger Espasa, CEO of chip design and verification firm Semidynamics Technology Services in Spain, said that supporting both design and manufacturing would be key for the overall success of the initiative.

"Design is where the distance to the US and others is bigger, with Europe completely lacking advanced computing chips in 5nm or less. Manufacturing is also behind others, with production focused only in the 22-28nm, and 14nm in Ireland owned by Intel. The Chips Act needs to help build both designs that need sub-5nm technology and foundries (and packaging houses) where those designs can be realised," Espasa told The Register.

When asked if the Chips Act faces uphill challenges, Espasa said that "multi-member-state initiatives are always challenging," but the recent success of EPI shows that concerted efforts can work in the semiconductor industry.

He added that the EU should be able to take advantage of the fact that ASML is the world leader in research and lithography products to develop a leading technology process.

At the press conference, Thierry Breton, EC internal markets commissioner, said that Europe needed to invest in "cutting-edge technology" including "very high performance microchips" and manufacturing processes below 1nm.

Breton also said that he wanted to see US-style "mega fabs", saying: "We want three or four in Europe as well."

The EU is also considering relaxing its own state aid rules, designed to prevent unfair subsidies by EU countries harming competition, to facilitate these new chip fabrication facilities as part of the Chips Act.

The Commission said in a Q&A provided to The Register this morning:

Private investment in chips manufacturing facilities may likely require public support. In light of the extremely high barriers to entry and the capital intensity of the sector... the Commission may consider to approve aid to such facilities directly under Article 107(3)(c) TFEU. This provision allows the Commission to approve State aid to facilitate the development of certain economic activities, if the positive effects of such State aid outweigh its potential negative impact on trade and competition.

"This will allow – for the first time – public support for European 'first-of-a-kind' production facilities, which benefit all of Europe," Von der Leyen said. "Such facilities, they would not exist in Europe if we do not do something. It may be justified to cover up to 100 per cent of the proven funding gap with public resources."

Beneficiaries of this may include Intel, which was previously planning to expand its chip manufacturing operations in Europe, and was said to be considering locations in France, Germany, Belgium, Poland or the Netherlands. Intel recently agreed to build $20bn fabrication facilities in Ohio, US.

According to Reuters, GlobalWafers is also seeking to build a new production facility site as part of an expansion unveiled after its planned takeover of Germany's Siltronic fell through.

Philippe Notton, CEO of SiPearl, said today's announcement was "built on Europe's strengths, especially research and innovation for advanced nodes and energy efficient chips".

"It will help SiPearl to achieve our goal to bolster Europe technological sovereignty in supercomputing for strategic applications such as medical research, climate modeling or energy management."

However, there is some doubt over whether the EU Chips Act is ambitious enough to succeed. Richard Gordon, VP for Semiconductors & Electronics at analyst Gartner, pointed out that it mirrors the $52bn US Chips Act, but said these figures amounted to little more than chickenfeed as far as chip manufacturing goes.

"$52bn is a drop in the bucket compared with what the semiconductor companies like Samsung and Intel are themselves planning to invest over the next decade. It's hundreds of billions. I don't think people realise how much investment chip fabrication requires," he said.

While any investment is a good thing, he said it was mainly a political gesture in the context of western governments suddenly realising that they have offshored most of their chip manufacturing to Taiwan and China, and looking at how they can bring some of that back on shore.

Meanwhile, the Chips Act will need to be approved in the European Parliament before anything can happen at all. Member states now need to discuss the commission's proposals in the ordinary legislative procedure and, if adopted, the regulation will then be directly applicable across the EU. ®