The European Chips Act
What is the European Chips Act?
According to Article 1, the European Chips Act is a Regulation that establishes a framework for strengthening the semiconductor ecosystem in the EU, in particular through:
(a) the establishment of the Chips for Europe Initiative (the ‘Initiative’);
(b) setting the criteria to recognise and to support integrated production facilities and open EU foundries that are first-of-a-kind facilities and that foster the security of supply and the resilience of the Union’s semiconductor ecosystem;
(c) setting up a coordination mechanism between the Member States and the Commission for mapping and monitoring the Union’s semiconductor sector as well as crisis prevention and response to semiconductor shortages and, where relevant, consulting stakeholders from the semiconductor sector.
30 November 2023 - The official inauguration of the Chips Joint Undertaking (Chips JU)
The European Commission has officially inaugurated the Chips Joint Undertaking (Chips JU), which will reinforce the European semiconductor ecosystem and Europe's technological leadership. It will bridge the gap between research, innovation and production thereby facilitating the commercialisation of innovative ideas.
The Chips JU is the main implementer of the Chips for Europe Initiative (expected total budget €15.8 billion until 2030). The Chips JU aims at strengthening Europe's semiconductor ecosystem and economic security by managing an expected budget of nearly €11 billion by 2030, provided by the EU and participating states.
The Chips JU will:
- Set up pre-commercial, innovative pilot lines, providing industry state-of-the-art facilities to test, experiment and validate semiconductor technologies and system design concepts;
- Deploy a cloud-based Design Platform for design companies across the EU;
- Support the development of advanced technology and engineering capacities for quantum chips;
- Establish a network of competence centres and promote skills development.
The work of the Chips JU reinforces Europe's technological leadership by facilitating the transfer of knowledge from the lab to the fab, bridging the gap between research, innovation and industrial activities, and by promoting the commercialisation of innovative technologies by European industry including start-ups and SMEs.
21 September 2023 - The European Chips Act enters into force
The European Chips Act consists of three main pillars.
The first pillar - the Chips for Europe Initiative - reinforces Europe's technological leadership, by facilitating the transfer of knowledge from the lab to the fab, bridging the gap between research and innovation and industrial activities and by promoting the industrialisation of innovative technologies by European businesses. The Chips for Europe Initiative will be primarily implemented by the Chips Joint Undertaking.
The Initiative will be supported by €3.3 billion of EU funds, which is expected to be matched by funds from Member States. Concretely, this investment will support activities such as the setting up of advanced pilot production lines to accelerate innovation and technology development, the development of a cloud-based design platform, the establishment of competence centres, the development of quantum chips, as well as the creation of a Chips Fund to facilitate access to debt financing and equity.
The Chips for Europe Initiative has the following five operational objectives:
1. Setting up a Design Platform.
2. Enhancing existing and developing new advanced pilot lines.
3. Building capacities for accelerating the development of Quantum chips and associated semiconductor technologies.
4. Establishing a network of competence centres across the Union.
5. Setting up a Chips Fund to facilitate access to debt financing and equity, in particular for start-ups, scale-ups, SMEs and small mid-caps.
With the exception of the Chips Fund (which will be implemented by the European Innovation Council and InvestEU), the Initiative will mainly be implemented through the Chips Joint Undertaking;— previously known as the Key Digital Technologies Joint Undertaking.
The Initiative is supported by funding from the Horizon Europe and the Digital Europe programmes.
Design Platform.
The design platform proposed in the Chips Act is a cloud-based virtual environment to be made available across the Union, integrating a wide range of design facilities, from IP libraries to Electronic Design Automation (EDA) tools, as well as support services. The platform will be accessible in an open, non-discriminatory and transparent way. It will stimulate wide cooperation between users and key actors of the ecosystem and reinforce Europe’s chip design capacity.
Pilot Lines.
The Chips for Europe Initiative includes a number of pilot lines for the purpose of process development, test and experimentation, as well as small-scale production. These will serve as a platform for European research and development with an industrial perspective to bridge the gap from lab to fab.
A non-exhaustive list of three pilot line areas of strategic importance for Europe has already been identified:
- Sub-2nm GAA process technology development
- FD-SOI technology at 10nm and below
- Heterogeneous integration
Quantum Chips and associated semiconductor technologies.
The Chips for Europe Initiative will also focus on the specific needs of the future generation of information processing components exploiting non-classical principles, notably chips exploiting quantum effects (i.e., quantum chips).
In particular, the Initiative will support the development of design libraries for quantum chips, new or existing pilot lines, cleanrooms and foundries for prototyping and producing quantum chips as well as facilities for testing and validating advanced quantum chips produced by the pilot lines.
The second pillar of the European Chips Act incentivises public and private investments in manufacturing facilities for chipmakers and their suppliers.
The second pillar creates a framework to ensure security of supply by attracting investments and enhancing production capacities in semiconductor manufacturing. To this end, it sets out a framework for Integrated Production Facilities and Open EU Foundries that are “first-of-a-kind” in the Union and contribute to the security of supply and to a resilient ecosystem in the Union interest. The Commission has already indicated at the time of the Chips Act proposal that State aid may be granted to first-of-a-kind facilities, in accordance with the Treaty on the functioning of the European Union.
In its third pillar, the European Chips Act has established a coordination mechanism between the Member States and the Commission for strengthening collaboration with and across Member States, monitoring the supply of semiconductors, estimating demand, anticipating shortages, and, if necessary, triggering the activation of a crisis stage. As a first step, a semiconductor alert system has been set up on 18 April 2023. It allows any stakeholder to report semiconductor supply chain disruptions.
18 April 2023 - The European Commission welcomes the political agreement on the European Chips Act
The Commission welcomes the political agreement reached between the European Parliament and the EU Member States on the European Chips Act.
Semiconductors are at the centre of strong geostrategic interests, and of the global technological race. For this reason, the Commission proposed the European Chips Act, which strengthens European competitiveness and resilience in this strategic sector.
Chips are the essential building blocks of digital and digitised products. From smartphones and cars, through critical applications and infrastructures for healthcare, energy, defence, communications and industrial automation, chips are central to the modern digital economy.
Recent shortages of semiconductors have highlighted Europe's dependency on a limited number of suppliers outside of the EU, in particular Taiwan and South-East Asia for manufacturing of chips, and the United States for their design. To respond to critical dependencies, the European Chips Act will strengthen manufacturing activities in the Union, stimulate the European design ecosystem, and support scale-up and innovation across the whole value chain. Through the European Chips Act, the European Union aims to reach its target to double its current global market share to 20% in 2030.
The first pillar of the Act - the Chips for Europe Initiative - will reinforce Europe's technological leadership, by facilitating the transfer of knowledge from the lab to the fab, bridging the gap between research and innovation and industrial activities and by promoting the industrialisation of innovative technologies by European businesses.
The Chips for Europe Initiative will combine investments from the Union, Member States and the private sector, through a strategic reorientation of the Key Digital Technologies Joint Undertaking (renamed ‘Chips Joint Undertaking'). The Initiative will be supported by €6.2 billion of public funds, of which €3.3 billion from the EU budget agreed today for the period until 2027, the end of the current multi-annual financial framework.
This support will come in addition to €2.6 billion public funding already foreseen for semiconductor technologies. The €6.2 billion will support activities, such as the development of a design platform and setting up of pilot lines to accelerate innovation and production.
The Initiative will also help the establishment of competence centres, located across Europe, which will provide access to technical expertise and experimentation, helping companies, SMEs in particular, to improve design capabilities and developing skills. Together with design centres of excellence, they will become poles of attraction for innovation and for new talent. Moreover, to support start-ups and SMEs, access to finance will be ensured through a Chips Fund and a dedicated semiconductor equity investment facility established under InvestEU.
In addition to the Chips for Europe Initiative, the second pillar of the European Chips Act will incentivise public and private investments in manufacturing facilities for chipmakers and their suppliers. This will contribute to the overall public investments in the sector estimated at €43 billion.
The second pillar of the European Chips Act will create a framework to ensure security of supply by attracting investments and enhancing production capacities in semiconductor manufacturing. To this end, it sets out a framework for Integrated Production Facilities and Open EU Foundries that are “first-of-a-kind” in the Union and contribute to the security of supply and to a resilient ecosystem in the Union interest.
In its third pillar, the European Chips Act will also establish a coordination mechanism between the Member States and the Commission for strengthening collaboration with and across Member States, monitoring the supply of semiconductors, estimating demand, anticipating shortages, and, if necessary, triggering the activation of a crisis stage. To address such situations, the European Chips Act establishes a dedicated toolbox of measures that can be undertaken.
Already now, since the proposal for a European Chips Act, together with the second Important Project of Common European Interest in microelectronics currently under assessment, which involves 20 Member States and dozens of participants, investment plans towards industrial deployment have reached €90 - 100 billion. The adoption of the European Chips Act will allow a faster realisation of those projects and further progress in attracting investment to secure Europe's supply chain in semiconductor.
Which is the next step?
The political agreement reached by the European Parliament and the Council is now subject to formal approval by the two co-legislators.
1.12.2022 - The Council has formalized its negotiating position.
It provides the Council presidency with a mandate for negotiations with the European Parliament, which will start as soon as the Parliament adopts its position.
The European Parliament’s Committee on Industry, Research and Energy (ITRE) appointed Mr Dan NICA as rapporteur on the Chips Act proposal. The ITRE Committee is expected to vote on its amendments to the Commission’s proposal and adopt the mandate for negotiations in January 2023, with the negotiating mandate expected to be voted at Plenary in February 2023.
The European Chips Act is built on three pillars:
1. Pillar 1: setting up the Chips for Europe Initiative to support technology capacity building and large-scale innovation across the EU to enable the development and deployment of cutting-edge and next generation semiconductor and quantum technologies that will strengthen the EU’s capabilities and competences in advanced design, systems integration and component production; more specifically, the Chips for Europe Initiative includes five operational objectives related to: the development of pilot lines, to test and experiment innovative process technology and design concepts; the development of a design platform, to facilitate access to design resources; support to quantum chips; the set-up of competence centres and the strengthening of skills, to increase access and talent across the Union; and a Chips Fund, to support start-ups and the scaling-up of SMEs;
2. Pillar 2: creating a framework to ensure security of supply by attracting increased investment and production capacity in semiconductor manufacturing as well as in packaging and advanced testing and assembly through first-of-a-kind integrated production facilities and EU open foundries;
3. Pillar 3: establishing a mechanism for coordinating surveillance and crisis response between Member States and the Commission to strengthen collaboration with and between Member States, monitor the supply of semiconductors, estimate demand, anticipate shortages, trigger the activation of a crisis phase and deploy a dedicated toolbox.
11.5.2022, Commission Staff Working Document, A Chips Act for Europe
On 8 February 2022, the European Commission proposed a comprehensive set of measures for strengthening the EU’s semiconductor ecosystem, the European Chips Act.
In this package, the Commission has adopted a Communication, outlining the rationale and the overall strategy, a proposal for a Regulation for adoption by co-legislators, a proposal for amendments to a Council Regulation establishing the KDT Joint Undertaking, and a Recommendation to Member States promoting actions for monitoring and mitigating disruptions in the semiconductor supply chain.
To complement the proposed package, and as provided for in the Better Regulation rules for cases where an Impact Assessment could not be prepared due to the urgency of an initiative, this Staff Working Document (SWD) aims to explain why Europe needs to act now to address shortcomings in key chip design and manufacturing competences and facilities to ensure its resilience against supply chain disruptions.
This SWD also provides additional information concerning the rationale behind the proposed measures in the 3 pillars which are the foundations of the proposal and explains further their implementation.
This would not have been possible without providing a panoramic description of the characteristics of the semiconductor value chain, key market and technology trends and opportunities, given the complexity of the technological context and of the semiconductor ecosystem.
The SWD also intends to elucidate on the ongoing crisis and the pivotal role semiconductors have acquired in the global context. Semiconductors are indeed at the centre of geopolitical interests. Leading economies are keen to secure their supply in the most advanced chips with significant investments, as this increasingly conditions their capacity to act economically, industrially, militarily, being the drivers of the digital transformation.
Unprecedented Global Semiconductor Shortages
Semiconductor supply chains are highly interconnected with many actors across the globe and numerous choke points which can impact production. Over the past 2 years, Europe and other regions of the world have witnessed disruptions in the supply of chips, causing shortages across multiple economic sectors with potentially serious societal and economic consequences.
In a nutshell, the disruptions resulted from multiple factors, including the acceleration of digital transformation in industry leading to an increased demand in a large number of semiconductor components and devices; heightened demand for computers, electronics and technology products as lockdowns related to the COVID-19 pandemic led to a surge in remote working, home schooling and digital entertainment; COVID-19-related closures of key fabs; dislocations in global logistics and transportation networks coupled with shortages of raw materials, key components and intermediary products.
The shortage of chips has impacted downstream sectors such as automotive, energy, communications and health, as well as defence, security and space, forcing delays in production and factory closures across the world. The impact was severe and in the automotive sector, for instance, production in some European Member States decreased by one third in 2021.
Why has the supply chain become so fragile?
Since the turn of the century, the semiconductor industry has responded to market difficulties through consolidation and outsourcing to the Far East, particularly concerning production, and assembly and testing. While this appears to have led to better utilisation of existing capacity, however it has reduced available spare capacity. Thus, given the high capital expenditure and time required to set up new manufacturing facilities, there appears to be limited possibility to increase production if demand goes up considerably as it did from early 2020.
At the same time, the drive towards zero inventory approaches by some end user industries has led to a situation where in case of a sudden increase in demand for chips, there is very limited available inventory buffer to source from, until production can catch up. The result of this is a high susceptibility across the supply chain to surges in demand. A key problem is that once demand exceeds supply it takes at least 2-3 years to recover as there is a need for significant investment to increase capacity and inventory with a resulting long lead time for components.
In recent years, geopolitical tensions have been simmering. China depends on US-origin technology and imports of chips from Taiwan. With the “Made in China 2025” plan launched in 2015, China set itself the ambition of reaching 70% autonomy in chip-making by 2025 and to this end earmarked USD 150 billion to build up semiconductor design and manufacturing capacity. The creation of this fund has been linked to the growth in pace of cross-border acquisitions in the sector since 2015.
The U.S. government has responded to this “concerted push by China to reshape the market in its favour”. In 2019, the US Department of Commerce broadened the application of its Export Administration Rules (EAR) to curb the technological advance of certain Chinese companies by cutting them off from critical US-origin technology. Because of Europe’s strong dependence on US-origin technology for chip design however, these measures have impacted European chipmakers trading with China.
The shortages over the past two years have exposed structural vulnerabilities in highly interdependent and global value chains already weakened by lean production strategies and geopolitical frictions predating the pandemic. They have furthermore served to highlight Europe’s dependency on supply from a limited number of companies and geographies.
Edge Computing
Today, 80% of data is processed in the cloud and this market is characterised by few US companies that currently take 80% of the revenue. However, the trend is that the need for computing power at the edge (close to or on the device where data is captured or generated) is growing much faster than the demand for processing in the cloud. It is expected that in 5 years 80% of data processing will take place at the edge reversing today’s balance. This represents a huge opportunity for Europe to gain a strong foothold and be at the forefront of leadership in this market.
Already there is a proliferation of so-called edge devices, e.g., smart watches, smart meters, robots, sensors and there are many potential applications, e.g., monitoring the elderly in their homes, optimisation of renewal energy sources, tracking and optimising resource use in factories, optimising pesticide and water use by farm machinery, etc. In all cases, data is collected and analysed locally, close to the device or person in question. By keeping data local, edge computing provides benefits in terms of privacy and reduces energy consumption as less data is sent to the cloud for remote processing. Linkages between application domains, e.g., renewables with EV charging, are also possible to provide further optimisation and generate new business cases.
Edge devices will get smarter and smarter as increasingly higher levels of computational power can be embedded in a device. This will result in a paradigm shift and already there are examples such as autonomous driving happening today with the trialling of ad hoc 5G networks along major highway corridors.
In February 2020 the European Commission adopted the Data Strategy and new legislation has been proposed. This naturally puts emphasis on sensors, peripheral equipment and computers used in sectors such as transport, logistics, agriculture, etc.
It is clear that Europe has strengths in systems design for key industrial sectors such as manufacturing, automotive, etc. The key differentiator in future will be in providing trusted hardware/software platforms that can support the non-functional requirements of the application domains. This is an area where Europe is a leader.
Increasing Security and Confidentiality Requirements
As the world has become more digitalised and interconnected, security has become a key requirement for electronic devices from the point of view of safety, but also from the point of view of confidentiality.
Security has become a major topic across many sectors including automotive, industrial automation, communications, healthcare, aerospace and defence. For industries such as automotive or healthcare, a security breach can lead to physical injury and/or loss of customer confidence, introducing concerns over liability.
With the introduction of GDPR in Europe personal data needs to be carefully processed. With home working, people are using their own devices which may pose multiple cybersecurity challenges. Devices which are used for both business and personal use may run outdated or pirated software that hackers can exploit to access confidential and valuable business data. It is also easier to gain access to a private network. The average cost of a data breach has increased from USD 3.86 million to USD 4.24 million during 2021, due to people working from home. Fewer than 3% of organisations protect their employees’ mobile devices.
Cybersecurity challenges come in many forms, including ransomware, phishing attacks, malware attacks, etc. Ransomware attacks target desktops, laptops, mobile phones and smart security devices. The aim is to compromise sensitive user data in the device itself or render it unusable, or alternatively use it as gateway to other devices for other malicious attacks. As cloud services are being increasingly used for personal and professional data, they are subject to increasing attacks. In phishing attacks, user data, such as login credentials and credit card numbers, is stolen. Here the aim is not to block access but to exploit access.
At the chip level there are concerns about third-party IP or unknowns in the global supply chain that may lead to “backdoors” in devices. General approaches currently used to boot securely and to authenticate firmware are not sufficient when considering electronics deployed in cars, robots, drones, servers and medical devices. There is a need for designed-in robust hardware security (see Figure 34) considering different threats.
Designing active security into a device will impact complexity and power consumption - an issue for battery powered devices. The added complexity may also add other vulnerabilities. With complex designs making their way into automotive, medical and industrial applications, where they are expected to be used for up to 25 years, security needs to be well architected and flexible enough to respond to future security holes and more sophisticated attack vectors. There is a need to continually innovate to guard against future new attacks.
Designing to reduce the risk of potential hardware breaches requires a solid understanding of a chip’s architecture. This includes partitioning and prioritisation of data movement and data storage, as well as obfuscation techniques and activity monitoring. As chipmakers utilise more customisation and heterogeneity, this is becoming more difficult. The drive for scaling is also driving architects to package components together. This presents challenges as not all components may be inherently secure and many customised accelerators and IP blocks are provided as black boxes.
There is thus a need for ensuring that solutions can be fully audited and checked/verified (e.g. possibility to look for back doors in open source IPs). Notably this is not possible for IPs licensed from 3rd parties. Common Criteria security certifications for simple hardware IP such as smart cards24 exist, however, for more complex processors, security is still in its infancy and it is not possible to buy a Common Criteria certified general purpose multicore processor.
To get around this companies have to make liability limiting statements based on the hardware’s documented interface. However, this may be insufficient as highlighted by the Spectre/Meltdown vulnerabilities which appeared in 2018 which were unexpected for almost all OS vendors.
EU Member States agreed to “work towards common standards and, where appropriate, certification for trusted electronics, as well as common requirements for procurement of secure chips and embedded systems in applications that rely on or make extensive use of chip technology.” Reference certification procedures for specific critical sectors and technologies with potential high social impact are necessary. Certification of these chips for trust and security should cover the value chain up to integration in end products and should be reflected in public procurement and promoted in international standardisation activities.
The European Chips Act
According to the European Commission, semiconductor chips are the essential building blocks of digital and digitised products. From smartphones and cars, through critical applications and infrastructures for healthcare, energy, communications and industrial automation, chips are central to the modern digital economy. The COVID-19 pandemic has exposed a weakness in the eco-system within both Europe and other regions in the world experiencing significant shortages of chips. EU industries manufacture many types of high-tech products, of which chips are essential parts.
Europe must reinforce its capabilities in semiconductors to ensure future competitiveness and maintain its technological leadership and security of supply. The sector is both capital and knowledge intensive and chips supply chains are global, complex and currently rely on a few manufacturing sites.
Europe has many strengths and some weaknesses in the semiconductor value chain. The semiconductor sector is characterised by intense R&D activity, with first-class companies reinvesting more than 15% of their revenues into research in next generation technologies. The EU is home to world-leading research and technology organisations and many excellent universities and research institutes spread across the Union. These are pioneering the techniques behind the production of some of the world's most advanced chips.
Moreover, Europe is very well positioned in terms of the materials and equipment needed to run large chip manufacturing plants, with many companies playing essential roles along the supply chain.
Despite these strengths, Europe has an overall global semiconductors production market share of less than 10% and is heavily dependent on third-country suppliers. In case of severe disruption of the global supply chain, Europe's chips' reserves in some industrial sectors (e.g. automotive or healthcare devices) could run out in a few weeks, bringing many European industries to a standstill.
As the digital transformation accelerates and penetrates every part of society, industrial needs for chips are set to increase, opening new market opportunities.
The Chips Act is a unique opportunity for Europe to act jointly across all Member States, to the benefit of the whole of Europe. However, the current chips shortage is a systematic issue with no quick fix.
In the short term, the toolbox set out in the Recommendation will immediately enable the coordination between the Member States and the Commission. This will allow to discuss and decide on timely and proportionate crisis response measures, if considered necessary.
In the medium term, the Chips Act will strengthen manufacturing activities in the Union and support the scale-up and innovation of the whole value chain, addressing security of supply and a more resilient ecosystem.
And, in the long-term, it will maintain Europe's technological leadership while preparing the required technological capabilities that would support transfer of knowledge from the lab to the fab and position Europe as a technology leader in innovative downstream markets.
08 February 2022 - European Chips Act: Communication, Regulation, Joint Undertaking and Recommendation.
Communication from the Commission: A Chips Act for Europe. You can find the document in English, German and French.
Action europeenne sur les semi-conducteurs.
08 February 2022 - Proposal for a Regulation establishing a framework of measures for strengthening Europe's semiconductor ecosystem (Chips Act).
Proposal for a Regulation (Chips Act).
Semiconductor chips are central to the digital economy. They make digital products work: from smartphones and cars, to critical applications and infrastructures in health, energy, communications and automation to most other industry sectors.
They are also key to the technologies of the future, including artificial intelligence (AI) and 5G/6G communication. There is no “digital” without chips.
Within the past year, Europe has witnessed disruptions in the supply of chips, causing shortages across multiple economic sectors and potentially serious societal consequences. Many European sectors, including automotive, energy, communication and health as well as strategic sectors such as defence, security, and space are under threat by such supply disruptions. At the same time, fake chips start appearing on the market, compromising the security of electronic devices and systems.
The current crisis has revealed structural vulnerabilities of the European value chains. The global semiconductor shortage has exposed European dependency on supply from a limited number of companies and geographies, and its vulnerability to third country export restrictions and other disruptions in the present geopolitical context. Furthermore, this dependency is exacerbated by the extremely high barriers to entry and capital intensity of the sector. For example, the most computationally powerful chips require manufacturing to a precision of a few nanometres (nm). Building such facilities entails an upfront investment of at least EUR 15 billion and requires three years to achieve production-readiness with adequate yields. The expenditures to design such chips can range from EUR 0.5 billion to well over EUR 1.0 billion. Research and development (R&D) intensity in the sector is high and more than 15%.
Today, European players invest mainly in R&D, but not enough in translating its results into industrial benefits. Such R&D is a key enabler of miniaturisation in semiconductor technologies required for the production of the next generation computationally powerful chips. Europe is home to world-leading research and technology organisations (RTOs). However, many results of European R&D are industrially deployed outside the Union. The Union is strong in the design of semiconductor components for power electronics, radio frequency and analogue devices, sensors and microcontrollers that have a widespread use in the automotive and manufacturing industries today. It is less strong in the design of digital logic (processors and memory), which become essential as data, AI and connectivity become increasingly pervasive.
The European Chips Strategy is articulated around five strategic objectives:
- Europe should strengthen its research and technology leadership;
- Europe should build and reinforce its own capacity to innovate in the design, manufacturing and packaging of advanced chips, and turn them into commercial products;
- Europe should put in place an adequate framework to increase substantially its production capacity by 2030;
- Europe should address the acute skills shortage, attract new talent and support the emergence of a skilled workforce;
- Europe should develop an in-depth understanding of global semiconductor supply chains.
What is a semiconductor?
A semiconductor (or integrated circuit, microelectronic chip, or computer chip) is an electronic device generally smaller than a postage stamp, that is composed of billions of components that store, move, and process data.
All of these functions are based on the unique properties of semiconducting materials, such as silicon and germanium, which allow for the precise control of the flow of electrical current. Semiconductors give data storage and communication capabilities to mobile phones, gaming systems, aircraft avionics, industrial machinery, and military equipment and weapons. Hybrid electric automobiles contain as many as 3,500 semiconductors.
Semiconductor chips are fundamental to emerging technologies such as artificial intelligence, cloud computing, 5G, the Internet-of-Things (IoT), and large-scale data processing and analytics and supercomputing.
Semiconductors can be classified into four major product groups, mainly based on their function:
1. Microprocessors and logic devices are used for the interchange and manipulation of data in computers, communication devices, and consumer electronics. They perform a wide variety of tasks, such as running a word processing program or a video game.
2. Memory devices are used to store information. This segment includes dynamic random access memory (DRAM), a common and inexpensive type of memory used for the temporary storage of information in computers, smartphones, tablets, and flash memory, which retains data even when power is shut off.
3. Analog devices are used to translate analog signals, such as light, touch, and voice, into digital signals. For example, they are used to convert the analog sound of a musical performance into a digital recording stored online or on a compact disc.
4. Optoelectronics, sensors, and discretes (commonly referred to as O-S-D). Optoelectornics and sensors are mainly used for generating or sensing light, for example, in traffic lights or cameras.
Silicon is still the most widely used basic material on which semiconductors are fabricated. Five firms account for 90% of the world’s silicon wafer production; two Japanese firms, Shin-Etsu and Sumco, account for around 60%. Silicon wafers are manufactured in a number of countries around the world, including the United States, Japan, Taiwan, Malaysia, and the United Kingdom.
European-headquartered semiconductor firms
European-headquartered semiconductor firms accounted for about 10% (~$40 billion) of global semiconductor sales in 2019. Three firms based in the European Union — STMicroeletronics, Infineon Technologies, and NXP Semiconductors — ranked among the world’s top 15 semiconductor firms by sales in 2019.
European-headquartered semiconductor companies tend to specialize in niche markets, including the automotive industry, energy applications, and industrial automation; these firms do little production of computer- and consumer-related chips. Some European companies are considered strong in chip architecture, mobile telecommunications and industrial applications, and security chips (e.g., passports, IDs, and smartphones), a market dominated by NXP, Infineon, and STMicroelectronics. Europe’s share of global revenues for fabless firms is small (2%).
In May 2013, the European Commission (EC) announced an initiative aimed at increasing Europe’s share of global semiconductor manufacturing by providing $11.3 billion (€10 billion) in public and private funding for R&D activities in an effort to induce about $113 billion (€100 billion) in industry investment in manufacturing. The initiative called for a multipronged approach that included easing access to capital financing by qualified companies; pooling European Union (EU), national, and regional subsidies to enable larger-scale projects; and improving worker training.
The Commission’s goal was for European firms to account for 20% of global chip manufacturing by 2020. The years-long program may have helped prevent Europe’s market share in wafer fabrication from declining. European-based fabs accounted for 3% of global 300mm wafer fabrication production capacity in 2019, the same share as in 2015. Bosch and Infineon, among the most important suppliers of automotive semiconductors, are each constructing a new 300mm fab in Europe.
The European Commission and European governments continue to seek ways to bolster Europe’s microelectronics sector. A 2018 report, Rebooting Electronics Value Chains in Europe, prepared by Europe’s semiconductor companies for the Commission, recommended that the EU provide additional funds for public-private partnerships in microelectronics manufacturing and other electronics components and systems.
France, Germany, Italy, and the United Kingdom received Commission approval at the end of 2018 for a $2 billion (€1.7 billion) joint microelectronics project aimed at encouraging investments in internet-connected devices and connected car technologies; this effort is scheduled for completion by 2024. The Commission anticipates that this investment will stimulate roughly $6.7 billion (€6 billion) in private investment.
The shortage of semiconductors
The world is short of semiconductors. According to the European Commission, the shortage has very concrete consequences on the EU economy, jobs and even leisure. Carmakers postpone the production of vehicles. Broadband providers run out of Internet routers. Gamers cannot get their hands on next-gen consoles.
The situation might last for a while. Semiconductors are at the core of our world’s digitisation, but global supply is currently struggling to meet the explosion of demand driven by smartphones, Internet of Things and connected cars.
But it is not only about supply and demand. Semiconductors are at the centre of strong geostrategic interests, and at the core of the global technological race.
Superpowers are keen to secure their supply in the most advanced chips as they are well aware that it will condition their capacity to act (militarily, economically, industrially) and drive digital transformation.
Chips are a strategic component of any industrial chain. The race for the most advanced chips is a race about technological and industrial leadership.
The US are now discussing a massive investment under the American Chips Act designed to finance the creation of an American research centre and to help open up advanced production factories. The objective is clear: to increase the resilience of US semiconductor supply chains.
Taiwan is positioning itself to ensure its primacy on semiconductor manufacturing.
China, too, is trying to close the technological gap as it is constrained by export control rules to avoid technological transfers.
On 19 October 2021, the European Commission published its 2022 Work Programme with the key goals for 2022. Here we can read that the European Commission will publish a proposal for a European Chips Act in the first half of 2022.
Alliance on Processors and Semiconductor technologies
The Alliance brings together key actors to design and produce microelectronics chips.
The European Commission launched the European Alliance on Processors and Semiconductor technologies in July 2021. From smartphones to 5G to the Internet of Things and beyond, processors and semiconductor technologies are crucial for a successful Digital Decade.
The overall objective of the Alliance is to identify current gaps in the production of microchips and the technology developments needed for companies and organisations to thrive, no matter their size. This will help the competitiveness of companies, increase Europe’s digital sovereignty and address the demand for the next generation of secure, energy-efficient, powerful chips and processors.
The Alliance will enhance and foster collaboration across existing and future EU initiatives. It will help to provide the EU with the necessary capabilities in semiconductor technologies to power its critical digital infrastructure and communication networks. And, it will support a range of sectors and technologies, including automotive, industrial automation, healthcare and AI-enabled systems.
This translates in 2 main lines of actions, addressing the main gaps Europe is facing:
1. The reinforcement of the European electronics design ecosystem. This includes design at leading-edge nodes and open-source hardware solutions, which will help develop powerful and resource efficient processors.
2. The establishment of the necessary manufacturing capacity. This includes assembly testing and advanced packaging, by a mix of local and global players, to produce the next generation of trusted processors, electronic components and technologies. This will translate into a twin track to be developed in parallel: moving Europe towards producing technologies from 16 nanometres (nm) to 10 nm, as well as from 5 nm to 2 nm and beyond. These most advanced type of semiconductors which, in addition to performance increases, have the potential to cut massively the energy used by everything from phones to data centres.
Any organisation with relevant existing or planned activities in the area of processor and semiconductor technologies, including end-user companies, associations, and research and technology organisations, can join the Alliance. They can do so by signing the Declaration and filling in the application form provided they meet the eligibility criteria set out in the Terms of Reference.
Semiconductors - the situation in the USA
According to the Semiconductor Industry Association (SIA), the U.S. semiconductor industry employs over a quarter of a million workers and company sales totaled $208 billion in 2020. Advances in semiconductor technology have been, and continue to be, a linchpin of U.S. economic prosperity and national security.
But there is currently a global shortage of semiconductors due to several factors, including disruptions related to the COVID-19 pandemic and the increased use of semiconductors in cars. The industry is also facing the technical limits of conventional semiconductor materials. This portends the end of “Moore's Law,” which for more than 50 years has held that, thanks to miniaturization, the number of semiconductor devices called transistors that can be packed on a chip doubles about every two years.
There is also a supply chain problem. Americans invented semiconductors and lead the world in chip technology but provide only 12 percent of global semiconductor manufacturing capacity, according to the SIA. Most chip manufacturing occurs in Asia.
Moves are afoot to boost U.S. semiconductor manufacturing, research innovation and supply chain security. Advances in measurement science, standards, materials, instrumentation, testing, and manufacturing capabilities will be needed to help design, develop and manufacture next-generation microelectronics.
According to the US Congressional Research Service, semiconductors enable nearly all industrial activities, including systems that undergird U.S. technological competitiveness and national security.
Many policymakers see U.S.strength in semiconductor technology and fabrication as vital to U.S. economic and national security interests. The U.S. semiconductor industry dominates many parts of the semiconductor supply chain, such as chip design. Semiconductors are also a top U.S. export. Semiconductor design and manufacturing is a global enterprise with materials, design, fabrication, assembly, testing, and packaging operating across national borders.
Six U.S.-headquartered or foreign-owned semiconductor companies currently operate 20 fabrication facilities, or fabs, in the United States. In 2019, U.S.-based semiconductor manufacturing directly employed 184,600 workers at an average wage of $166,400.
Some U.S.-headquartered semiconductor firms that design and manufacture in the United States also have built fabrication facilities overseas. Similarly, U.S.- headquartered design firms that do not own or operate their own fabrication facilities contract with foreign firms located overseas to manufacture their designs. Much of this overseas capacity is in Taiwan, South Korea, and Japan, and increasingly in China. Some Members of Congress and other policymakers are concerned that only a small share of the world’s most advanced semiconductor fabrication production capacity is in the United States.
Other have become increasingly concerned about the concentration of production in East Asia and related vulnerability of semiconductor supply chains in the event of a trade dispute or military conflict and other risks such as product tampering and intellectual property theft.
Some Members of Congress and other U.S. policymakers have expressed concerns about the economic and military implications of a loss of U.S. leadership in semiconductors. China’s state-led efforts to develop an indigenous vertically integrated semiconductor industry are unprecedented in scope and scale. Many policymakers are concerned that these efforts, if successful, could significantly shift global semiconductor production and related design and research capabilities to China, undermining U.S. and other foreign firms’ leading positions.
In October 2020, Ellen M. Lord, Under Secretary of Defense for Acquisitions and Sustainment, testified:
"Reduced U.S. capability in microelectronics is a particularly troublesome area for the [Defense Industrial Base]. Government incentives and low labor costs in foreign countries have been the main drivers for the migration of microelectronics manufacturing, packaging, and testing to off-shore suppliers. This strains our ability to acquire and sustain microelectronic components embedded in systems critical to national security and national defense. Reliance on non-U.S. suppliers for microelectronics leaves DOD vulnerable. The risks of this reality include: availability of microelectronics in case of embargo; loss of U.S. intellectual property from offshore dependency; and loss of confidence the technology will function as intended due to possible malicious activity by foreign fabricators."
Although China’s current share of the global industry is still relatively small and its companies produce mostly low-end chips, China’s industrial policies aim to establish global dominance in semiconductor design and production by 2030. Moreover, Chinese semiconductor competencies could support a range of technology advancements, including military applications. Another issue for policymakers is how to address competing interests: China is an important market for U.S. semiconductor firms but U.S. and foreign industry are helping to advance China’s capabilities.
China’s government outlays (an estimated $150 billion to date) and its role as a central production point for global consumer electronics are generating strong incentives and pressures on U.S. and foreign firms to focus on China. The Chinese government views access to foreign capabilities in the near term as a key pathway to accelerate China’s indigenous development. Also of concern to many are China’s state-led efforts to acquire companies and access semiconductor technology through both licit and illicit means; targeted intellectual property (IP) theft; and technology-transfer pressures.
Issues before Congress include the appropriate role of government in assisting U.S. industry; how best to focus federal financial assistance; the amount of funding each proposed activity would need to accomplish its goals for sustaining U.S. semiconductor competitiveness; how to coordinate and integrate federal activities internally and with initiatives of the U.S. semiconductor and related industries; and how to address China’s ambitious industrial plans, trade practices of concern, and the role of U.S. firms in China’s emerging semiconductor market.
Legislation has been introduced in the 116th Congress to increase federal funding for semiconductor research and development efforts; collaboration between government, industry, and academic partners; and tax credits, grants, and other incentives to spur U.S. production. Two bills under consideration are the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (S. 3933/H.R. 7178) and the American Foundries Act (AFA) of 2020 (S. 4130). Some of the provisions of these acts have been included in other bills.
Ursula von der Leyen, European Commission President, 2021 State of the Union address.
Digital is the make-or-break issue. And Member States share that view. Digital spending in NextGenerationEU will even overshoot the 20% target.
That reflects the importance of investing in our European tech sovereignty. We have to double down to shape our digital transformation according to our own rules and values.
Allow me to focus on semi-conductors, those tiny chips that make everything work: from smartphones and electric scooters to trains or entire smart factories.
There is no digital without chips. And while we speak, whole production lines are already working at reduced speed - despite growing demand - because of a shortage of semi-conductors.
But while global demand has exploded, Europe's share across the entire value chain, from design to manufacturing capacity has shrunk. We depend on state-of-the-art chips manufactured in Asia.
So this is not just a matter of our competitiveness. This is also a matter of tech sovereignty. So let's put all of our focus on it.
We will present a new European Chips Act. We need to link together our world-class research, design and testing capacities. We need to coordinate EU and national investment along the value chain.
The aim is to jointly create a state-of-the-art European chip ecosystem, including production. That ensures our security of supply and will develop new markets for ground-breaking European tech.
Yes, this is a daunting task. And I know that some claim it cannot be done.
But they said the same thing about Galileo 20 years ago.
And look what happened. We got our act together. Today European satellites provide the navigation system for more than 2 billion smartphones worldwide. We are world leaders. So let's be bold again, this time with semi-conductors.