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Semiconductor production can benefit from the Chip Law

The semiconductor production can be enhanced thanks to the planned investment of 42,000 million euros public and private funds through the Chip Law.

The European Commission intends to double the global production share from 10% to 20%. Of the €42 billion announced, €30 billion come from investments from the Member States, the NextGen EU funds, and funding from Horizon Europe and Digital Europe.

The timing for a policy that supports and encourages the semiconductor industry could not be better. Since the widespread shortage of semiconductors began, European industry has been affected, especially the automotive sector, as revealed by IDC in its study “The European Industry Impact of the Semiconductor Shortage: When Technology Deadlocks Spill Over into the Wider Economy”.

And to assess the impact of this fact from a market perspective, IDC has just published its new “Worldwide Semiconductor Technology Supply Chain intelligence”, which confirms the mismatch between the supply and demand for semiconductors, with a growth in demand of 24, 4% in 2021 in EMEA, the second fastest growing area globally.

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“The manufacture of semiconductors in Europe has been reduced in the last decade, drifting towards Asian countries”, explains Rudy Torrijos, IDC research manager, enabling technologies and semiconductors. “The number of semiconductors per device increases every year as a consequence of the digital transformation process in the industrial environment. If we want to maintain Europe’s participation in this market, it is mandatory to increase its investment in the manufacture of semiconductors in the next 10 years”.

Investment in research

European countries had the option to invest in semiconductor research through the Project of Common European Interest (IPCEI) of 2018, but few joined this initiative. The European Chip Law goes further and focuses on the real heart of the problem: the vulnerability of the dependence of the supply chain on external technology.

“The European Chip Law is the first supply-side policy whose intention is to enhance the entire European market, modifying the strict competition and anti-subsidy rules that characterize the EU market” declares Anielle Guedes, IDC senior research analyst for IDC’s European Customer Insights & Analysis group. This law is a response to the current shortage, but it is also related to recent moves by the EU to improve its digital and technological sovereignty in the coming decades.

It also covers the field of permits and certifications, framework investments, access of SMEs and medium-sized enterprises to financing for innovation, start-up and expansion; and, most critically, instruments to anticipate future problems in the supply of semiconductors.

While the timing is very opportune, plans to increase microprocessor production in Europe will take time to materialize due to the timeframes and capital required by foundries. For this reason, it will be a long time before the result can be seen. To this is added that a very significant part of the funds comes from the states and as such, rounds of approvals are pending. However, technology providers cannot afford to wait until supply-demand mismatches are ironed out.

“Given the current chip shortage and its butterfly effect over time, a ‘wait and see’ approach is not the best strategy for technology providers and customers. More proactive actions are needed, such as adopting open global value chains and accelerating the transition to hardware-agnostic solutions, and all are urgent”continues Andrea Siviero, associate research director, IDC’s European Customer Insights & Analysis group.

Europe remains a geographic magnet for technological development with its market size, highly-skilled workforce and advanced technology to expand the semiconductor industry pan-European. The EU also has a unique market structure, thanks to the Common Market, which allows it to implement any changes across the bloc.”

Finally, according to Guedes, “There are competition challenges ahead that the EC must address by enacting additional policies or readjusting the Chip Act to keep critical industries afloat, fill national gaps and ensure antitrust rules. Europe would undoubtedly be more competitive in the microprocessor market if it addressed the investment gap for new factories, the lack of skilled talent in microprocessor design, and could transfer its state-of-the-art R&D capabilities to large-scale production. ”.

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