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The European Commission’s proposed use of national governments to monitor and respond to the semiconductor supply chain won’t work, according to Stiftung Neue Verantwortung eV, an independent, non-profit think tank based in Berlin.

Jan-Peter Kleinhans, Julia Hess and Wiebke Denkena have produced a report that looks in detail at the powers and ambitions the European Chips Act proposes for government authorities. They have concluded that the Commission has set national authorities a Herculean and impractical task that is unlikely to have any effect in correcting for supply chain disruptions.

Instead the group is calling on the Commission to limit the remit to supply chain mapping, arguing that building a understanding of the deep complexities of the electronics and semiconductor supply chains is likely to be more cost-effectively beneficial in helping governments to support them.

Three pillars of wisdom?

The European Commission has proposed the European Chips Act with a budget of about €43 billion be built on the three pillars (see European Chips Act could include powers for EU control). The first is focused on innovation and design. The second, where most tax payers’ money will be spent, is on subsidies to encourage the building of “first-of-a-kind” manufacturing facilities.

Under this second pillar Intel Corp. is set to get about €6.8 billion (about US$6.9 billion) from the German government towards the €17 billion initial cost of building two side-by-side 300mm wafer fabs in Magdeburg, Germany (see Intel to get 40% subsidy for German wafer fabs). Globalfoundries and STMicroelectronics are also expected to get more modest support for a 300mm wafer fab in Crolles, near Grenoble (see Opinion: Next Crolles wafer fab helps keep Europe in the deep tech game).

The third pillar however boosts governments’ role in the supply chain calling on them to monitor price surges, lead times and inventory levels as early warning signs of a supply chain crisis. The proposed legislation, which is unlikely to be passed before January 2023, also includes tools to secure the supply of chips in a crisis. This includes priority ordering; the ability for governments to demand a company produce certain ICs, regardless of the impact on supplying other orders.

The authors conclude that these powers would not be effective in a sector with highly specialized, diversified and customized products with long latencies in production. Some ICs spend six months in production processes with over 1,000 individual steps, said Kleinhans.

Naive

“We believe it [supply chain monitoring] is a very hard task. Is the data safe in the hands of governments?” he asked. He also observed that market forecasting is even harder and that commercial companies and analysts who are incentivized to perform the task are frequently more than 10 percent off, sometimes even mis-calling general trends.

The report contends it would be naïve to think that the European Commission, together with member states, could anticipate shortages based on existing market forecasts – which private sector companies have failed to do – let alone establish more accurate forecasting.

“Governments need to shift their focus from crisis management to crisis prevention,” he added.

Co-author Julia Hess said: “It seems like the monitoring is here to stay but how deep do you go? It should be changed in the direction of supply chain mapping,” she argued.

The reasoning is that supply chain mapping, despite the complexity of the semiconductor industry is a lighter task for the authorities.

“We think there is a meaningful role for governments. They need to invest in their ability to understand the semiconductor supply chain. If you know the ecosystem you know where to strengthen the ecosystem,” said Kleinhans.

Related links and articles:

www.stiftung-nv.de

News articles:

European Chips Act could include powers for EU control

Opinion: Next Crolles wafer fab helps keep Europe in the deep tech game

European 2nm chip fab a “futile endeavour,” says think tank


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