EU unveils €43 billion microchip manufacturing splurge

The European Union has announced a huge investment strategy to scale up its semiconductor sector, in a belated bid to achieve chip autonomy.

Th European Chips Act is a strategy to mobilise €43 billion of public and private investments into the European chip sector. This includes €15 billion (or €11 billion depending in which of the EU documents released today you look at) to be directly provided under something called the Chips for Europe Initiative to finance research, design and manufacturing capabilities.

There are several reports and more than several vague statements around sustainability, leadership and innovation, but the crux of it seems to be that as highlighted by the pandemic and current supply shortages, the situation of being dependent on a few firms outside the EU bloc for the microchips that are increasingly embedded in all sorts of places is not desirable. Therefore, let’s pull some financial levers to try and get more manufacturing capability at home where we can keep an eye on it.

It’s a bit of EU legislation, so there are a lot of things being said and a lot of details to get caught up on – but to boil it down further it’s about funding R&D, increasing production, and getting a skilled workforce in place to build more chips within its borders. One of the documents claims the EU represents about 10% of the global market share, and through these measures it wishes to double that by 2030.

There are also some mentions of how the EU wants to do a better job of anticipating more international chip shortages and building out plans on how to respond as and when they come.

“The European Chips Act will be a game changer for the global competitiveness of Europe’s single market,” Commission President Ursula von der Leyen. “In the short term, it will increase our resilience to future crises, by enabling us to anticipate and avoid supply chain disruptions. And in the mid-term, it will help make Europe an industrial leader in this strategic branch. With the European Chips Act, we are putting out the investments and the strategy. But the key to our success lies in Europe’s innovators, our world-class researchers, in the people who have made our continent prosper through the decades.”

This mirrors activity in the US where President Biden has proposed $52 billion be ploughed into domestic semiconductor production. In January a report by the US Department of Commerce warned that the global chip shortage isn’t going away anytime soon, and the US needs to ramp up its domestic production. The report stated: “The RFI confirmed that there is a significant, persistent mismatch in supply and demand for chips, and respondents did not see the problem going away in the next six months. The RFI results make it clear: America needs to produce more semiconductors. Congress must pass funding for domestic semiconductor production, such as the U.S. Innovation and Competition Act, to solve our supply challenges for the long term.”

“We will continue to advocate for the President’s proposed $52 billion to enhance domestic semiconductor production included in the U.S. Innovation and Competition Act. This semiconductor shortage is the result of a significant mismatch in supply and demand, further exacerbated by the pandemic. The number one issue identified in the RFI is insufficient fab capacity, and that’s what the President’s proposal is designed to accelerate.”

Despite the reticence of the EU to address the issue directly in this announcement, a lot of the impetus to get semiconductor manufacturing done domestically is the same thing as what’s driving the US to do so – China and its sabre rattling over Taiwan.

Global markets are heavily dependent on a few firms for chips and on one company in particular. Much of the global supply of cutting-edge chips, especially those used in mobile, is produced by TSMC out of Taiwan. This has been the status quo for years, but the more China ramps up the aggressive rhetoric in the region, and the more relations between the US and China degrade, the less western governments seem comfortable with it.