On July 25, the EU Council approved the Chips Act, the final step in the decision-making process. This Act aims to improve Europe’s semiconductor ecosystem and industrial base, as well as promote research and innovation, attract investment and prepare Europe for chip supply issues. The Council also adopted an amendment to the regulation establishing the Horizon Europe Joint Undertakings, to enable the establishment of the Chips Joint Undertaking, which builds on and renames the existing Key Digital Technologies Joint Undertaking.
The Chips Act is anticipated to revive Europe’s semiconductor sector and lessen its dependence on foreign suppliers. The goal is to boost the EU’s semiconductor market share from 10% today to 20% by 2030.
The Chips Act has resulted in new production sites, industrial investment and research programs. It will mobilize €43 billion in public and private investments, and the EU budget will provide €3.3 billion.
Semiconductor shortage
The global shortage of semiconductors has had far-reaching consequences across various industries, highlighting the critical importance of chips in modern society.
Some of the key reasons for the semiconductor shortage include:
Complex and interdependent supply chain: The production of chips involves a highly complex and interconnected global supply chain. Many semiconductor firms rely on numerous specialized suppliers scattered across different countries. Disruptions at any point in this chain can lead to shortages.
Global geopolitical challenges: Geopolitical tensions and conflicts between countries can impact the semiconductor industry. Events like the Covid-19 pandemic and the war in Ukraine have exacerbated the vulnerability of the global supply chain to such challenges.
Natural disasters: Natural disasters like fires and droughts can severely affect large semiconductor manufacturing plants, causing production disruptions and further worsening the shortage crisis.
Long lead times for solutions: Building new chip manufacturing facilities takes considerable time and investment, often requiring two to three years or more. As a result, solutions to increase chip production capacity have long lead times.
The EU Chips Act aims to increase the EU’s share of global production capacity from below 10% today to 20% by 2030. By doing so, the EU seeks to strengthen its semiconductor manufacturing capabilities, maintain technological leadership and ensure competitiveness and security of supply.
To achieve these goals, the EU has adopted the Chips Joint Undertaking, an investment tool under the Horizon Europe work program. The Chips Joint Undertaking is an EU public-private partnership that aims to pool approximately €11 billion from various sources, including EU funding, member countries, partner countries and the private sector. This financial support will be used to bolster R&D in the semiconductor sector, promoting long-term growth and EU leadership in the field.
Securing Europe’s supply of semiconductors is crucial not only for the region’s industries and businesses but also for supporting key technologies that are driving the digital transformation and enabling essential services and products across various sectors worldwide.
Why a Chips Act?
The fundamental components of digital and digitized goods are semiconductor chips. Chips play a crucial role in the current digital economy, from smartphones and automobiles to vital applications and infrastructures for healthcare, energy, communications and industrial automation. The Covid-19 pandemic has revealed a flaw in the ecosystem in Europe and other parts of the world where there is a severe chip scarcity. Chips are a key component of many high-tech goods produced by the EU industry.
To preserve its technical leadership, supply security and competitiveness in the future, Europe must strengthen its semiconductor capabilities. Chip supply chains are global, complicated and currently dependent on a small number of production facilities, making the industry both capital- and knowledge-heavy.
Strengths and challenges
Europe has a number of strengths in the semiconductor market, but it also faces significant challenges that need to be addressed to ensure its competitiveness and security of supply.
What are the main assets of the EU landscape? “Let me say, first of all, research and development,” said Vittorio Calaprice, policy analyst for the European Commission (EC) Representation in Italy.
“The EU boasts intense R&D activity in the semiconductor sector, with leading companies reinvesting a substantial portion of their revenues into research for next-generation technologies,” he added. “The presence of world-leading research organizations, excellent universities and research institutes across the Union certainly contributes to pioneering advancements in chip production. I would like to add the importance of the materials and equipment: Europe is well-positioned in terms of the materials and equipment needed to run large chip manufacturing plants.”
Many European companies play essential roles in the semiconductor supply chain, but what about the main challenges?
“The first challenge is to cope with the low share of global production,” Calaprice said. “As Europe’s overall global semiconductor production market share remains below 10%, we need to increase production capacity and market presence to enhance competitiveness. The second one is the dependence on third-country suppliers: Europe’s semiconductor industry heavily relies on suppliers from outside the EU. Such dependence on third-country suppliers makes Europe vulnerable to disruptions in the global supply chain, as witnessed during the recent shortage crisis. The third, and most impactful, is the risk of shortages in critical sectors. The heavy reliance on external suppliers can lead to potential shortages in critical industries like automotive and healthcare devices. If a severe disruption occurs, Europe’s reserves of chips in these sectors could be depleted within weeks, causing significant disruptions to various industries.”
To address these challenges and capitalize on the opportunities brought about by the digital transformation, the EU Chips Act and the Chips Joint Undertaking aim to boost domestic production of semiconductors in Europe. By increasing the region’s share in global production capacity to 20%, the EU seeks to secure its supply, reduce dependence on external sources and maintain technological leadership in the semiconductor industry. As industrial needs for chips continue to grow with the rapid pace of digital transformation, Europe’s efforts to strengthen its semiconductor manufacturing capabilities and invest in research and innovation will be crucial in ensuring its competitiveness in the global chips market and fostering new market opportunities in various sectors.
EU Chips Act: a multi-facet approach
Calaprice said the EU Chips Act aims to address the current problems linked to the semiconductor shortage and to strengthen Europe’s position in the semiconductor market through a multi-facet approach:
Short-term measures: The Chips Act provides a toolbox to enable coordination between member states and the EC, facilitating timely and proportionate crisis response measures if necessary. This allows for immediate action to address the current chip shortage and mitigate its impact.
Medium-term measures: The Chips Act will focus on strengthening manufacturing activities within the EU and supporting the scale-up and innovation of the entire semiconductor value chain. By doing so, it aims to enhance security of supply and create a more resilient ecosystem that is better prepared to handle future challenges.
Long-term measures: In the long run, the Chips Act aims to maintain Europe’s technological leadership in the semiconductor industry. It seeks to foster the development of required technological capabilities to support the transfer of knowledge from research labs to chip manufacturing facilities. This focus on innovation and leadership will also position Europe as a technology leader in downstream markets that rely on advanced semiconductor technologies.
The “Chips for Europe” Initiative is a significant part of the overall funding package under the Chips Act. It will pool €11 billion of public investments until 2030 from the EU and its member states, complemented by considerable private investments. The Initiative is designed to reinforce the EU’s semiconductor technology and innovation capabilities, ensuring Europe’s leadership in the mid- to long-term.
The key components of the Chips for Europe Initiative include:
Deployment of advanced semiconductor design tools: The Initiative will support the deployment of cutting-edge semiconductor design tools, enhancing the efficiency and performance of chip development processes.
Pilot lines for next-generation chips: Pilot lines will be established to prototype and test the next generation of chips, driving innovation and ensuring Europe’s competitiveness in advanced chip technologies.
Testing facilities for innovative applications: Testing facilities will be set up to explore innovative applications of the latest chip technologies, supporting the development of new use cases and market opportunities.
Quantum chip technology: The Initiative will invest in advanced technology and engineering capabilities for quantum chips, an emerging field with vast potential for transformative applications.
The Chips for Europe Initiative will be implemented through the Digital Europe and Horizon Europe programs, with most of its actions falling under the new EU Chips Joint Undertaking. Digital Europe will focus on capacity building in key digital domains, where semiconductor technology plays a crucial role, such as high-performance computing, artificial intelligence and cybersecurity. Horizon Europe will support pre-competitive research, technology development and innovation in materials and semiconductor technology.
By leveraging Europe’s existing research leadership, production equipment providers and strong user sectors, the Chips for Europe Initiative aims to bolster Europe’s position as a leader in the semiconductor industry, driving technological advancements and securing its supply in the long term.
Calaprice suggested that to address the skills shortage in the semiconductor industry and ensure a sustainable talent pipeline, the Chips for Europe Initiative, under the EU Chips Act, will focus on the following measures:
Education and training support: The Initiative will invest in education, training, skilling and reskilling programs to develop a skilled workforce. This will include support for postgraduate programs in microelectronics, short-term training courses, job placements, traineeships and apprenticeships. By providing access to advanced laboratories and fostering hands-on experience, the Initiative aims to enhance practical skills and knowledge.
Competence centers network: The creation of a network of competence centers across Europe will play a crucial role in nurturing talent and providing opportunities for internships and apprenticeships. This network will not only promote collaboration between academia and the industry but also raise students’ awareness of the diverse opportunities within the semiconductor field.
Scholarships and incentives: The Chips for Europe Initiative will support dedicated scholarships for master’s and Ph.D. students, encouraging more individuals to pursue careers in microelectronics. Moreover, special efforts will be made to increase female participation in the sector, promoting diversity and inclusivity.
Investments
The ambitious goals of the EU Chips Act require substantial investments to be successful.
The funding will come from a combination of sources:
Public investments: The European Union will provide direct investments of more than €11 billion through the Chips for Europe Initiative. This funding will be crucial for financing research, design and manufacturing capacities in the semiconductor industry until 2030.
Private investments: Alongside public funding, significant contributions from private investors will be sought. Private sector involvement is essential for driving innovation, scaling up production and creating a sustainable industry ecosystem.
National and regional funding: The Initiative will complement existing actions in semiconductor R&D, such as those from Horizon Europe and the Digital Europe program. Member States may also contribute additional support through their specific measures, recovery and resilience plans, national or regional funds and incentives.
Semiconductor chips can store vast amounts of data and execute mathematical and logical functions. Credit cards, vehicles and cellphones need them. Artificial intelligence, 5G networks and the internet of things will increase chip demand and market potential. Europe is excessively dependent on foreign chips, as the Covid-19 pandemic showed. Supply shortages affected industry, health, defense and energy. The Chips Act strengthens the EU’s chip industry, maximizes commercial prospects and creates high-quality jobs. This will boost EU chip security, resilience and technological sovereignty.
The combination of public and private investments will create a powerful impact, enabling the semiconductor industry to expand, attract top talent and foster innovation. By addressing the skills shortage and supporting education and training initiatives, Europe aims to build a strong and skilled workforce that can lead the way in semiconductor technology and maintain the region’s position as a global leader in the field.