The EU Chip Act is about to take effect! Plan to increase the global share of European chips to 20% Europe | Semiconductors | Global

On July 25th local time, the European Council issued a statement stating that it had approved regulations to strengthen the European semiconductor ecosystem, which was the final step in the decision-making process.

This means that the "Chip Bill" has completed all voting procedures, and after being signed by the President of the European Parliament and the President of the Council, the bill will be published in the official gazette of the European Union and will come into effect on the third day after its publication.

The EU Chip Act aims to create conditions for the development of industrial bases in the semiconductor industry in Europe, attract investment, promote research and innovation, and prepare Europe for future chip supply crises. The plan aims to double the EU's share in the global semiconductor market from 10% now to at least 20% by 2030.

In the European Parliament on the 11th of this month, the above-mentioned bill was passed with a high vote of 587 in favor and 10 against.

Invest 43 billion euros to support the chip industry

After the United States, South Korea, Japan, and India announced an increase in investment in the chip industry, the EU's Chip Act, as the core of the EU's "Strong Chip Program," was officially approved by representatives of member states on the 25th of this month. The European Council stated in a statement that in the face of global chip competition, the EU will lead the way through the Chip Act, promoting chip production, investment, research and development, etc; The long-term goal is to "revive" the EU chip industry and reduce dependence on external factors.

On July 11th, the European Parliament discussed and passed the specific details of the aforementioned bill. In addition to investing 3.3 billion euros in research and innovation related to chips, the EU will also create a network of capability centers to address the EU's skill shortage and attract new research, design, and production talents. At the same time, the "Chip Initiative" proposes multiple specific goals, including "establishing advanced design capabilities for integrated semiconductor technology", "achieving the development and deployment of cutting-edge semiconductor technology and next-generation semiconductor technology", "accelerating innovative development of cutting-edge quantum chips and related semiconductor technology", and "providing more convenient debt financing guidance for enterprises".

In addition, the EU will establish a chip crisis response mechanism. Specifically, the European Commission will assess the risks faced by the EU semiconductor supply through this mechanism. The warning indicators of member states will be used to trigger shortage alerts across the European Union. This mechanism will enable the European Commission to implement emergency measures, such as prioritizing the supply of products severely affected by shortages or conducting joint procurement for member states.

Industry insiders believe that unlike the US Chip and Science Act, the purpose of the European Chip Act is not to reconstruct the global chip industry chain, but rather to focus on strengthening collaboration and resource integration within the EU, and preventing international semiconductor industry crises through coordination with international partners.

The European Union is an important source of early development for the global semiconductor industry and also one of the "World Semiconductor Research Centers". But in the past two decades, Europe's share in chip production has decreased from 24% to the current 10%, and it lags behind Asia and the United States in cutting-edge chip innovation and production.

Therefore, in 2022, the EU proposed to invest over 43 billion euros to support chip production, pilot projects, and startups. Among them, 11 billion euros will be used to strengthen existing research, development, and innovation to ensure the deployment of advanced semiconductor tools and experimental production lines for prototype design and testing. By 2030, the EU plans to increase its share of global chip production from the current 10% to 20%.

In order to attract more semiconductor companies to increase investment, the European Commission also approved a $8 billion industry subsidy plan in June this year, involving 12 EU member states and 23 enterprises, including well-known chip manufacturers such as Intel, Infineon, NXP, and STMicroelectronics. The subsidy will drive these manufacturers to carry out research and development projects in chip design, testing, packaging, and manufacturing in Europe over the next five years.

Previously, Intel had stated that it would build two new chip factories in Magdeburg, Germany. Local media reported that this investment became the largest foreign direct investment project in German history. In May of this year, Infineon also started construction on a 12 inch wafer factory invested in Germany.

Gartner analyst Sheng Linghai told reporters that Germany and France are the main players in the chip bill. "From the perspective of subsidy amount, it's not a small amount."

However, in the long run, Sheng Linghai believes that the 20% chip market share target proposed by the European Union is too large and difficult to achieve under normal circumstances. "European egalitarianism and institutions find it difficult to participate in rapidly changing market competition."

Can we change the pattern of the European chip industry?

For a long time, the European Union has held a leading position in chip research and advanced equipment and other sub markets. It not only has ASML, a manufacturer of EUV lithography machines, but also a group of chip manufacturers specializing in designing specific semiconductor components, specializing in the production of automotive and industrial equipment chips.

At present, Infineon, NXP, and STMicroelectronics have the first, second, and fifth market share in the global automotive industry, respectively.

In the early years, thanks to strong support from the French government, French industrial giant Thomson acquired American semiconductor company Moscat in the 1980s. In 1987, Moscat, which suffered consecutive losses, established a joint venture with Italian state-owned parts manufacturing company SGS under the mediation of the French government. In 1990, the merged company was renamed as STMicroelectronics Group and later renamed as the current STMicroelectronics. In the late 1990s, also due to consecutive losses and pressure from British and American shareholders, Siemens Semiconductor division was ultimately able to become independent as Infineon today.

NXP was born relatively late, and in 1953, Dutch semiconductor company Philips Electronics established its semiconductor department. 22 years later, Philips acquired Signals Semiconductor, founded by Katner, a company founded by the founder of Xiantong Semiconductor, which later became the core technology source of Philips Semiconductor. In the 1980s, Philips remained in the top ten semiconductor chip manufacturers in Europe and even globally. However, after 2000, with the adjustment of the company's business strategy and continuous losses in the semiconductor business, Philips decided to sell its semiconductor business to a Dutch private equity consortium. Finally, NXP Semiconductor Company became independent in 2006.

Although leading the chip segment markets such as automobiles and industrial equipment, the overall development trend shows that the EU's share of output value in the global semiconductor market has significantly declined in the past two decades.

On the one hand, with the continuous restructuring of the industrial chain in the context of globalization, high manufacturing costs have prompted the continuous transfer of chip production processes such as assembly, testing, and packaging to East Asia. The Brookings Institution previously stated that Europe's capital expenditure in the chip industry has also experienced a decades-long decline. In the 1990s, Europe accounted for approximately 8% of capital expenditure in the global chip industry, while the Asia Pacific region accounted for approximately 10%; By 2022, Europe's capital expenditure in the chip sector will only account for 3% of the global total, while the Asia Pacific region has risen to 66%.

On the other hand, the lack of large consumer electronics companies has also put the European semiconductor manufacturing industry in a passive position, gradually withdrawing from the competition for advanced chip processes. At present, the chip manufacturing in the European Union is mainly concentrated in relatively mature process nodes with a diameter of 22 nanometers and above, and does not have the high-end chip manufacturing capability with a diameter of 7 nanometers and below.

Deloitte pointed out in a report that in the past few decades, EU countries have been net importers of semiconductor equipment, with their consumption accounting for about 20% of global chip supply, while manufacturing only accounts for 9%. Deloitte expects that even with the policy stimulus of the EU Chip Act on chip manufacturing, this trend of net importers in the EU will not fundamentally change by 2030.

In addition, talent shortages and energy difficulties have added uncertainty to the development of Europe's semiconductor industry. According to a study by strategic consulting firm Stratot, a subsidiary of PwC, Europe still needs 350000 employees before 2030 to achieve the goal of doubling the market share of chips.

As of 2022, Infineon has consumed 250 million kilowatt hours of electricity and plans to increase production capacity by 50% in the coming years. According to industry forecasts, if the target of 20% market share is to be achieved, semiconductor equipment in Europe will consume 30 megawatt hours of electricity by 2030, equivalent to 5% of Europe's total electricity consumption, up from 10 megawatt hours today. In 2021, a large-scale power outage lasting about 20 minutes occurred in Dresden, Germany, causing Infineon's factory in the city to completely shut down until production resumed on the 15th. Therefore, many industry insiders believe that blindly setting a 20% target before the energy problem is solved is a very radical behavior.

Sheng Linghai believes that after the world is increasing chip production capacity, there may still be a risk of chip overcapacity in the future. For European companies, the automotive manufacturing industry is the largest customer purchasing chips. The characteristics of this industry are zero inventory and a relatively long supply chain. If excess production capacity cannot be absorbed, the return on investment of factories will not be too high, which in turn will dampen the enthusiasm of EU companies to develop the chip industry.