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Europe will need help from US, Asia to achieve goals


Technologist examines the computer chip.

Sefa Ozel | E+ | Getty Images

The European Union has set out ambitious goals to increase semiconductor production and be a leader in this industry.

Analysts stated that it would need to attract some major players from Asia and America in order to make significant investments in Africa.

On Tuesday, The European Commission (the executive arm of EU), will meet. launched the European Chips Act — a multi-billion euro attempt to secure its supply chains, avert shortages of semiconductors in the future, and promote investment into the industry. To be approved by the EU legislators, it must still be passed.

The chip is critical to all products, from smartphones and cars to refrigerators. However, a worldwide crunch has affected many industries. causing production standstills and shortages of products.

Semiconductors are now a reality national security issueThe U.S. has been a major point of interest for many years. geopolitical tension between the U.S. and China. This clash of semiconductors led to sanctions on China’s biggest chipmaker SMICAnd the world’s second-largest economy doubling down on efforts to boost self-sufficiency.

Now, with the EU’s latest proposal, some of these risk are being mitigated.

The European Commission stated that “In the face of growing geopolitical tensions and fast growth of demand and the potential for further disruptions to the supply chain,” Europe should use its strengths and implement effective mechanisms to strengthen leadership and secure supply in the global industrial chain.

Challenges in manufacturing

EU Chips Act will invest 43 billion Euros ($49 Billion) in semiconductor industries and aid the bloc to be an industrial leader.

The EU seeks to increase its chip market share to 20%, up from 9%, by 2030. It also wants to produce “most advanced and most energy efficient semiconductors” in Europe.

Its plan includes reducing excessive dependencies, but the EU also recognizes the importance of partnerships with like-minded partners.

The EU, even as it strives to be more self-sufficient will continue to rely on the U.S., and Asia in particular. Because of both the unique nature of the industry’s supply chain and its changing nature, this is because it has to deal with the challenges of semiconductor manufacturing.

Over the last 15 years or so, companies have begun shifting to a fabless model — where they design chips but outsource the manufacturing to a foundry.

The actual production of chips is done by Asian companies now dominateTaiwan’s leader TSMCIt has a roughly 50% share of the foundry revenue market. South Korea SamsungTaiwan is second, then China’s. UMC.

U.S. firm IntelIt was once an important player but has been a weaker in recent years. It is however, now. focusing on the foundry businessIt also plans to produce chips for other companies. Its technology is still behind TSMC or Samsung, however. These companies can produce the best-of-the-best chips for the latest smartphones. Intel stated last year that it plans to spend $20 billion on two new chip plants in Arizona, in a bid to catch up.

The EU has however no chip manufacturing companies.

“The EU must partner in the manufacturing of cutting edge wafers. This is their primary priority. Today’s EU players are limited to 22nm. It is unrealistic to believe that local EU players will be able to catch up to 22nm (nanometers), to 2nm,” Peter Hanbury of research firm Bain told CNBC.

A nanometer is the measurement of how large the transistors in a chip are. The smaller number indicates that more transistors are possible to fit on the chip, which can lead to better chips. Apple’s new iPhone uses a chip that measures 5nm. These chips are considered leading-edge.

EU companies might also be able to rely on U.S. semiconductor design tools

According to CEO of CCS Insights, Geoff Blaber (CEO), boosting chip production to 20 percent market share would be “a very difficult task” for Europe. Blaber said that “the focus on manufacturing represents the largest challenge,” to CNBC.

Does the EU look attractive enough?

There is increasing competition for talent as countries and regions look to ensure their supply of semiconductors.

A part of an $2 trillion economic stimulus package, U.S. President Joe Biden earmarked $50 billion for semiconductor manufacturing and research. The CHIPS for America Act, a bill also in the process of being introduced to the legislature is currently under review.

Countries such as South Korea, Japan and China all encourage investment in semiconductors.

Attracting new EU players will be the main problem. Hanbury stated that the EU should be more appealing than other geopolitical areas.

EU is trying to attract leading-edge chip makers. Although a site is not yet chosen, Intel plans to construct a new European chipfab. TSMC has begun to evaluate its production facilities in Europe.

Hanbury explained that “the EU (or any geographic area) does not need to outspend semiconductor players, but to influence their spend in their territory.”

Strengths of the EU

Despite European companies being behind the curve in manufacturing technology, there are still key players within the EU’s semiconductor industry.

It is important to remember that ASMLThe Dutch firm a. machine used by the likes of TSMCThis is the material used to create cutting-edge chips. Apple suppliers STMicroAnd NXPThey are both also located in Europe.

“[The]Hanbury explained that EU holds several industry-leading assets.

EU could focus on providing chip supplies for industries where European companies have large footprints, like the automotive sector. These semiconductors are typically less sophisticated and do not require modern manufacturing technology.

Blaber stated, “Think of some sectors in which we will see demand for technology in the next years. Automotive is one huge opportunity in Europe. That’s what I would expect the EU’s attention to be on.”