EU Chips Act heading for failure, time for Chips Act 2.0

Damning report says it set a moving target that was way too ambitious

The European Chips Act is unlikely to meet its target of hitting a 20 percent share of the global semiconductor market by 2030.

This is according to special report by the European Court of Auditors (ECA), which cast its eye over the project that aims to inject new vigour into the chip industry across the region, and details a number of flaws in what it found.

It says the European Commission (EC) has made reasonable headway on implementing its strategy, but progress is too slow and hampered by the fragmented nature of the funding, which is largely insufficient for the level of investment required.

Announcing the report's findings, Annemie Turtelboom, ECA member in charge of the audit, highlighted the huge importance of semiconductors to the modern world, stating that a car alone would likely contain more than 3,000 chips by the end of the decade.

"This is a fast-moving field, with intense geopolitical competition, and we are currently far off the pace needed to meet our ambitions. The 20 percent target was essentially aspirational – meeting it would require us to approximately quadruple our production capacity by 2030, but we are nowhere close to that with our current rate of progress," she said.

In fact, according to the EC's own forecast, the EU's overall share of the global semi market is likely to reach just 11.7 percent by 2030, not much of an increase from the 9.8 percent it stood at in 2022, making it a failure on those terms.

With large chunks of Chips Act largesse being earmarked for some of the biggest global players in the industry, such as chip giant Intel, there is greater risk that the money will be lost in the event of a failure

That isn't to say that the EU's output of microchips hasn't increased – it has – the trouble is that other regions have massively overtaken it in both production and development of new chips.

The ECA identified four issues with the EU Chips Act progress so far, Turtelboom said. The first was that the goal was overly ambitious, and that it kinda looks bad if the EU sets such targets and then misses them by a country mile.

"You set targets because you want to show that the EU is a serious actor on the world stage," she said.

Secondly, the EU is not competing with itself, and so "catching up" with China, South Korea, Taiwan and Japan is not enough, as these nations are a moving target, and the Chips Act needs to take account of this if Europe is not to find itself always at the back of the pack.

In addition, EU funding may seem like a lot of money on paper, but it pales in comparison with the sums being invested by the big semiconductor companies such as TSMC or Samsung.

The third issue is what Turtelboom calls "fragmented competences." This means the "financial muscle" the EU can bring to bear on semiconductor strategy is split between different actors, with the bulk coming from individual EU member states rather than controlled and distributed centrally by the EC.

In fact, the Commission is only responsible for about 5 percent (€4.5 billion, $5.1 billion) of the €86 billion ($97.6 billion) that the funding is now estimated to add up to by 2030.

As a result of this, the EC also "has a data problem," she added, as member states are under no obligation to report on the progress of Chips Act projects they are funding, which means that oversight of the entire strategy is lacking.

"It's crucial that if you set a target, that you know where you stand," Turtelboom said.

In addition, the fact that funding has largely come from individual EU member states means that most projects have ended up in a small number of countries that were able to put up the most money, like Germany.

The way the funds have been distributed is the another cause for concern. With large chunks of Chips Act largesse being earmarked for some of the biggest global players in the industry, such as chip giant Intel, there is greater risk the money will be lost in the event of a failure.

This latter issue was perhaps prompted by the fact that Intel, burdened by its own difficulties, has now put on hold both of the European projects it had previously won authorization of subsidies for. These were the wafer fabrication plant it wanted to build at Magdeburg in Germany, and the package assembly and test facility planned for Wrocław in Poland. Just another factor counting against the EU reaching that goal of 20 percent market share by decade's end.

The ECA recommends the EC "carry out an urgent reality check on the strategy and take the necessary short-term corrective actions," as well as bringing in systematic monitoring to identify as early as possible any impediments to achieving the strategy's objectives.

https://committees.parliament.uk/committee/773/uk-engagement-with-space-committee

The other main recommendation is the EC make haste in preparing the next semiconductor strategy, which should build on the results of the review and the "successes and failures" of previous chip strategies – by setting clear, timebound and realistic objectives, for example. Some European chipmakers have already pushed for a "Chips Act 2.0" that will do more to support the broader semiconductor sector in Europe.

Gaurav Gupta, VP analyst at Gartner, told us he was not surprised at the findings, adding that "EU's share in global microchip manufacturing footprint has only been on a decline and there haven’t been enough new projects that would give any confidence towards a 20 percent revenue share by 2030."

He added: "As an example, we have seen several announcements either being delayed or cancelled – Intel’s Germany fabs or other advanced packaging facilities/ partnership between GlobalFoundries and STM etc. The only substantial new investment has been TSMC’s fab in Dresden."

Gupta pointed to several factors he said were behind this, including:

1. High cost of setting up a new fab in the EU
2. Lack of a leading company that could drive this (leaders for semiconductor revenue or capital spending are either in the U.S or Asia)
3. Competing policies in other nations (U.S and several nations in Asia) that offer better prospects.
4. Lack of any major end-user company in the EU that would drive demand (EU’s strength and focus is automotive industrial sectors, which don’t really need a lot of advanced semiconductors- that would be critical in driving revenue up)
5. Regulatory hurdles and policies in the EU create a major roadblock for firms looking to set up fabs or other semiconductor facilities in the EU.

He added: “With regards to EU’s chip ambitions, they must be carefully crafted and focused on EU’s strengths – the initial policies seemed to have been driven by political statements that lacked in-depth analysis. EU has world-leading research organization – IMEC, a top wafer fab equipment company – ASML, and critical discrete and analog chip companies – STM, NXP, Infineon – however, a holistic semiconductor strategy or a unified position seems to be missing.

"Instead of just focusing on manufacturing footprint expansion to drive revenue, the EU could potentially look at chip design, IP, patents, and innovation,” added Gupta.

However perhaps the EC shouldn't be too downhearted, as the EU Chips Act isn't the only semiconductor strategy coming under a critical eye. The UK government has faced calls from local industry recently to up its game when it comes to implementing its National Semiconductor Strategy, while the US CHIPS Act will be lucky to survive the axe being swung at federal spending by the Trump administration. ®