Foo Yun Chene and Supantha Mukerjee

STOCKHOLM/BRUSSELS – Analysts believe that the European Commission’s plans to increase the value of the continent for investment in semiconductor factories may skew benefits toward larger countries like Germany, France, and Italy.

A subsidy race, which could see countries with greater resources tilting the balance in favor of those with more resources, may be possible with billions of euro of private and public investment.

“I can’t imagine how this could be avoided, as that’s the nature of beast… the same thing as the U.S. in which states offer different subsidies for companies building in one state.” Gartner Alan Priestley is a chip analyst for the NYSE.

The European chip manufacturing industry has fallen from 24% to global production capacity in 2000, to an current 8%. ASML chipmaker warned it could drop to 4% if nothing is done.

According to the Semiconductor Industry Association, the U.S. now has a 47% share of the chip market, closely followed by Asia and Europe.

By providing more subsidies and supporting the states to take 20% of global capacity, current European chip legislation will address this issue.

According to industry sources, there is more international collaboration as the chip supply chain covers the globe. Otherwise it would be expensive at least 1 trillion euros for an autonomous chip supply chain.

Intel (NASDAQ:), a company that has planned to invest $95billion in Europe over the next ten years, stated it believes the Chips Act will assist its European expansion plans.

American chipmaker Chipmaker is currently looking for places in France, Germany and Italy.

This is precisely the reason for the concern of smaller countries. The fear is that multinational firms may ignore the smaller countries in their search for factories to be built at a cost of more than $20 Billion.

Analysts stated that subsidies would be a significant factor but it is important to consider the availability of land, talent and research institutions before setting up factories.

Germany, France and Italy previously provided assistance to the state in building competence about microelectronics by funding Important Projects of Common European Interests (IPCEI) that had a budget of 2 million euros.

Smaller, more innovative businesses will be able to benefit from the new legislation, including access to advanced industrial partners, financial finance and skilled labor. Analysts suggest that these firms might choose to locate in smaller countries.

Jan Frederik Slijkerman, an analyst at ING said that “the presence of a European next-generation semiconductor fabrication facility would have positive spillover effects and drive investment in European supply chain infrastructures as well as act as a magnet to scarce talent.”

Margrethe Vestager (EU Competition Commissioner) stated that investment would be also made through a pan-European IPCEI. The chip will involve more than 100 participants, from around 20 EU countries. It will focus on AI processors.

She answered a question about TSMC’s interest in building a European factory and the possibility of EU assistance.

TSMC (the world’s biggest contract chipmaker) said last month that they were still in the early stages of assessing a possible fab in Europe. However, it declined to comment on European chip legislation.