Europe wants to be a computer chip powerhouse again. It’s not going to be easy

The European Commission will soon present its European Chips Act, a plan to reduce supply chain dependencies on chip manufacturers outside the bloc.

The plan was detailed by EC president Ursula von der Leyen at the 2021 State of the Union address

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“The aim is to jointly create a state-of-the-art European chip ecosystem, including production,” she said. “That ensures our security of supply and will develop new markets for ground-breaking European tech.”

SEE: Smartphone sales are riding out the global chip shortage

The EC in March unveiled its Digital Compass plan to make the EU digitally sovereign by 2030, by somehow raising its share of the world’s semiconductor supply from 9% today to 20% – or slightly less than half its share in the 1990s. 

“Whole production lines are already working at reduced speed – despite growing demand – because of a shortage of semi-conductors,” said von der Leyen. 

“But while global demand has exploded, Europe’s share across the entire value chain, from design to manufacturing capacity has shrunk. We depend on state-of-the-art chips manufactured in Asia. So this is not just a matter of our competitiveness. This is also a matter of tech sovereignty,” she said. However, von der Leyen conceded that reaching this level is not going to be easy. 

“Yes, this is a daunting task. And I know that some claim it cannot be done,” she said.

The US hasn’t fared much better in that time that the EU. The Semiconductor Industry Association (SIA) recently noted that the US’ 37% share of global chip manufacturing capacity in 1990 has fallen to 12% today.  

Asia dominates semiconductor manufacturing and technology thanks largely to the Taiwanese semiconductor contractor or chip foundry, TSMC, and South Korea’s Samsung. 

Intel’s new foundry contract/chip manufacturing business includes Qualcomm and Amazon Web Services as its first customers.   

Intel, which signed a major chip-making deal with the Pentagon last month, has also made overtures to the EC, claiming it will spend billions on two new chip fabrication facilities and as much as €80 billion expanding over the next decade in support of the EC’s Digital Compass plan.

SEE: If we put computers in our brains, strange things might happen to our minds

The EU Chips plan follows the US Senate passing the CHIPS Act (Creating Helpful Incentives to Produce Semiconductors) in July with a $50 billion budget for investing in semiconductor manufacturing and research. It still needs to win support in the House of Representatives.    

Auto manufacturer production in the US and Europe was severely constrained due to chip supply shortages since the pandemic began. As a Gartner analyst Alan Priestley told CNBC recently, the global chip shortage was compounded for automakers because they tend to use chips made on older manufacturing processes, where as chip companies are investing in higher-revenue chip capacity built with newer processes. Auto, for example, is only 4% of TSMC’s quarterly revenues, whereas chips for smartphone makers like Apple account for about half its revenues.   

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