The European Chips Act has no clothes
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The European Court of Auditors has exposed the disjointed and lacklustre performance of the European Chips Act, albeit with criticism couched in moderate terms.
The European Chips Act is the legislative framework adopted by the European Union in 2023 intended to strengthen the semiconductor ecosystem, address global chip shortages, and boost Europe’s technological sovereignty and competitiveness.
“The Chips Act provided new impetus, although without an impact assessment and clearly defined targets,” is a phrase from the auditors’ report that damns with faint praise.
Here is a more cogent criticism. “The EU urgently needs a reality check in its strategy for the microchips sector,” according to Annemie Turtelboom, the ECA Member in charge of the audit. That reminds me of the small boy in Hans Christian Andersen’s tale of the Emporer’s new clothes.
Europe will miss semiconductor targets, says report
When the European Chips Act was first proposed in February 2022 there was much hurrah amid the discussion of how it was necessary to reverse a long-term trend of declining European chip manufacturing.
At the time Ursula von der Leyen, president of the European Commission, said the act would help achieve the goal that 20 percent of worldwide chip production should take place in Europe by 2030. Von der Leyen and other politicians would add that Europe made about 10 percent of global chip production, so they were looking to achieve a doubling of market share. That headline-grabbing statistic made the project seem feasible.
Sometimes the politicians would add that over the following eight years the chip market might double in annual value. This implied that Europe needed to quadruple its chip production. That made the task seem tougher. But the figures were wildly optimistic even to the point of being located in cloud cuckoo land.
Aspiration versus realism
Many observers at the time were shocked. It was not a question of the European Commission lacking ambition but rather of it seeming to fail to understand the scale of the task. We pointed out that back in 2020 and 2021 market analysts had already assessed that Europe only purchased about 8.5 percent of the world’s semiconductors by value and ran a significant semiconductor trade deficit.
Another key factor was that major European headquartered chip companies had long since pursued globalization and gone fab-lite. Europe was mainly making legacy chips using mature manufacturing processes or specialized power devices or optical devices or sensor components.
The advanced chip manufacturing on 300mm-diameter wafers, that the politicians’ now valued for strategic reasons, was largely performed offshore. Indeed, Europe’s presence in 300mm wafer chip manufacturing had dropped to 2 percent by ownership and less than 1 percent by location as long ago as 2014, according to a market analyst at the time – IC Insights.
In other words, Europe would be effectively starting from scratch if it wanted to get back into chip manufacturing. This had to be a project requiring north of a hundred billion euros and with no guarantee of success because other geographic regions, particularly the US and China, were already spending similar sums of money but building on established capabilities in logic and memory.
It is also notable that the European Commission’s revised forecast projects an 11.7 percent market share by 2030. But it is now talking about a share in the “global market value chain by revenue” which includes lithography equipment maker ASML Holding NV. ASML’s contribution to European economic success is large but this still presents a changed metric and the opportunity to compare apples and oranges. The European Court of Auditors quotes a Boston Computing Group putting Europe’s 2030 global market share for chip manufacturing at 8 percent, up from 7 percent in 2020.
Europe sinks as China rises to lead in IC wafer capacity by 2026
Back in 2022 I and others were told not to criticize the project because “at last European politicians were waking up to the importance of semiconductors.” When challenged over the numbers and the viability of the project, politicians and business leaders, would say such things as: “Don’t be defeatist,” and “Every journey starts with a first step,” or “The numbers are not so important as the direction of travel.”
Turtelboom has reiterated that last idea saying “The 20 percent [target] was essentially aspirational.”
The politicians had dreams of European semiconductor sovereignty at 2nm. The business people were hopeful of a CHIPS act fashioned after that of the US which it appeared would provide billions of dollars in subsidies. Beyond that there seemed to be a “fake it until you make it” mentality.
Outnumbered
Well numbers are important. Here are some from the European Court of Auditors that tell the tale.
The Commission is responsible for only €4.5 billion of the €43 billion in estimated funding for the Chips Act up to 2030. The rest is expected to come from national government coffers. And that €43 billion, which is proving hard to find, is expected to stimulate the same amount again in private funding from semiconductor companies to make up a budget of €86 billion. That is proving even harder to find.
The one chip manufacturing company that has some cash swilling around is foundry TSMC and they have committed to build a wafer fab in Dresden in the form of the joint venture ESMC; but not at the leading edge.
The investment is quite sensibly aimed well-behind the leading edge, where there is some European demand from the automotive industry. But the investment is on the foundry’s terms and, frankly, Europe is lucky to get it. Meanwhile plans from Intel for two more advanced wafer fabs in Magdeburg, Germany, and for an STMicroelectronics-Globalfoundries wafer fab in Crolles, France, have been cancelled.
Conclusion
And here is a conclusion from the auditors’ report that many of us expressed before the Chips Act came into force. “The Chips Act is unlikely to be sufficient for stimulating the level of investment needed, with success also dependent on global competition and other crucial factors.
The European Chips Act was thought up in haste after the Covid pandemic coincided with some chip supply chain disruption. It has earmarked other authorities phantom money across a complex framework off newspeak objectives. And because that money is largely phantom, little has been achieved.
The European Chips Act itself was thought up after the failure of the 2013 strategy put forward by European Commissioner Neelie Kroes. She had proposed that an ‘Airbus-of-Chips’ would merge Europe’s national chip champions and reverse Europe’s diminishing capabilities in semiconductors. It got nowhere because it was not in the interest of the European chip makers or their shareholders.
The European Chips Act is essentially a continuation of that busted strategy because it does not address the fact that European chip manufacturers over decades have taken the globalization benefit and neither they nor the European taxpayer are yet prepared to pay the extreme cost of de-globalizing the semiconductor supply chain.
The European Chips Act 2.0 had better find some clothes to put on.
Related links and articles:
News articles:
Europe will miss semiconductor targets says report
European Chips Act funds persuade ChipFlow to relocate to Spain
ESIA calls for more funds and support from European Chips Act 2.0
European Chips Act ignores dependence on China for PCBs
€5 billion subsidy approved as ESMC breaks ground for Dresden fab
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