The European Commission may be ready to subsidise the semiconductor industry

The global semiconductor shortage has plagued many industries and frustrated consumers for the best part of two years. To avert future shortages, the European Union (EU) has now joined the ranks of several countries in introducing legislation to shore up their semiconductor production.

The European Commission recently introduced the European Chips Act, a multi-billion-euro investment in the European semiconductor industry that aims to fortify the supply chain against future shortages and increase the EU’s global market share of semiconductor chip production to 20% by 2030.

If passed, the European Chips Act will also contribute to the EU’s technological sovereignty agenda, which is a central policy objective of the current Commission.

The legislative package includes €43 billion in private and public investments for the semiconductor industry to “ensure the EU’s security of supply, resilience and technological leadership in semiconductor technologies and applications.” There are three main components to the Act.

  • The Chips for Europe Initiative, which will pool resources from the EU, Member States and third countries participating in current EU programmes to strengthen existing research, development and innovation, establish and train a highly skilled workforce, and ensure the deployment of advanced semiconductor tools.
  • The Chips Fund, geared towards ensuring the security of the semiconductor chip supply and facilitating access to financing for chip design and manufacturing start-ups.
  • A coordination mechanism for monitoring the semiconductor value chain and anticipating shortages to avoid future crises. Member States and representatives from the European Commission will sit on a newly formed European Semiconductor Board, which will assess potential crises and coordinate action from a to-be-created emergency toolbox.

But the European Chips Act faces some serious hurdles. Chief among them is the fact that there now exist no European firms that can mass-produce leading-edge chips, so the EU will need to convince Intel in the US, Taiwan’s TSMC or South Korea’s Samsung to build factories in Europe.

The talent to engineer and build semiconductors also now resides chiefly in the US and Asia, regions that have been building that business sector for decades.

The European Commission unsuccessfully proposed similar legislation in 2013 with the same goal of increasing Europe’s global market share of the semiconductor industry. Those hopes faded due to the high cost of catching up with and competing with the US and with Asian countries where semiconductors have long been efficiently produced.

Despite these challenges, building a reliable and varied global semiconductor supply chain has never been more important. Companies around the world – whether they manufacture, design or supply chips, or use them in their finished products – should pay immediate attention to the conversations around the European Chips Act.

It will serve all affected companies well to closely monitor policy discussions, take advantage of opportunities to engage in these conversations and begin considering how any new legislation or policy objectives could affect their business in the short and long-term.

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