CHIP SHORTAGE NEWS The EU’s plan to address the semiconductor shortage

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The EU has officially approved the EU Chips Act, but what exactly is this €43 billion piece of legislation all about, and what will it do to help the EU establish itself as a global leader in the semiconductor space?

The EU Council officially approved the European Chips Act on July 25th, marking the final step in the decision-making process and enshrining the Act in law.

EU officials say that the Act will “bolster Europe’s competitiveness and resilience in semiconductor technologies and applications and help achieve both the digital and green transition.” It will do this by strengthening Europe’s technological leadership in the field, as well as by promoting research and innovation, attracting investment, and preparing Europe for chip supply issues.

Why Europe needs a Chips Act

The European Chips Act (ECA) is expected to revive Europe’s semiconductor sector and reduce its reliance on foreign suppliers. The overall goal is to boost the EU’s semiconductor market share from 10% today to 20% by 2030 through the establishment of new production sites via €43 billion in public and private investments.

To achieve these goals, the EU has adopted the ‘Chips Joint Undertaking’. This is a public-private partnership under the Horizon Europe work program that aims to pool approximately €11 billion from various sources, including EU funding, member countries, partner countries, and the private sector.

Securing Europe’s semiconductor supplies is crucial not only for the region’s industries but also for supporting technologies that are driving digital transformation across not just Europe, but worldwide.

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EU market strengths and challenges

Although Europe has many strengths in the semiconductor market, it also faces many challenges that must be addressed in order to ensure its competitiveness and supply security. One of these strengths lies in research and development which, according to Vittorio Calaprice, policy analyst for the European Commission in Italy, contributes to “pioneering advancements” in chip production.

“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,” says Calaprice. “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.”

This R&D strength is marred by a generally low share in global production, however. “As Europe’s overall global semiconductor production market share remains below 10%, we need to increase production capacity and market presence to enhance competitiveness,” says Calaprice, who identifies Europe’s second and third biggest challenges as reliance on third-country suppliers and the risk of chip shortages in critical sectors respectively.

A multi-facet approach to these challenges

Calaprice says that the EU Chips Act aims to address these challenges and strengthen Europe’s position in the semiconductor market via a multi-facet approach.

In the short term, the Chips Act will enable coordination between member states and the European Commission to facilitate timely and proportionate crisis response measures. This will enable immediate action to address the existing chip shortage and mitigate its impact.

In the medium term, the Chips Act will focus on strengthening manufacturing within the EU and support the scale-up of the semiconductor value chain., By doing this, it will enhance supply security and create a more resilient ecosystem that can handle future challenges.

In the long term, the Chips Act will maintain Europe’s technological leadership in the semiconductor industry by fostering the development of technological capabilities to support the transfer of knowledge from research labs to manufacturing facilities.

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A significant part of these short, medium, and long-term goals is the ‘Chips for Europe’ initiative which has been formed under the Chips Act. This initiative will pool €11 billion of public investments until 2030 from the EU and its member states, complemented by considerable private investments in a bid to reinforce the EU’s semiconductor technology and innovation capabilities.

The Chips for Europe initiative will include:

• Advanced design tools: The Initiative will support the deployment of cutting-edge semiconductor design tools, enhancing the efficiency and performance of chip development processes.

• Next-gen chips: ‘Plot lines’ will be established to prototype and test next-gen chips, driving innovation and helping to shore up European competitiveness in advanced chip technologies.

• Testing facilities: Testing facilities will be established to explore applications of the latest chip technologies, supporting the development of new use cases.

• Quantum technologies: The Chips for Europe initiative will invest in advanced technology and engineering for quantum chips, an exciting emerging field that has the potential to produce transformative applications.

Chips for Europe will be implemented via the Digital Europe and Horizon Europe programs, with most of its actions falling under the new EU Chips Joint Undertaking. By leveraging Europe’s existing R&D, production equipment providers, leadership, and strong user sectors, Chips for Europe aims to bolster Europe’s position as a semiconductor market leader, driving technological advancements and securing long-term supply.

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EU Chips Act investments

The EU Chips Act is an extremely ambitious undertaking that will require significant investment to be successful. Funding will come from a variety of sources, including:

• Public investments: The EU is providing direct investments of more than €11 billion through the Chips for Europe Initiative. This funding will be crucial for financing R&D, design, and manufacturing until 2030.

• Private investments: Alongside public funding, the private sector will be asked to contribute. Their involvement will be essential for driving innovation and scaling up production beyond 2030.

• National funding: Member States may be asked to contribute support through their specific measures, recovery and resilience plans, and national or regional funds.

Semiconductors are of critical importance to our everyday lives. The last few years have shown us just how damaging a shortage can be, and legislators are keen to ensure that it doesn’t happen again. The EU Chips Act is just one example of many efforts currently taking place worldwide to secure chip supplies and ensure that we don’t have a repeat of the pandemic-induced shortage that has plagued supply chains for the last few years.

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