One of the farthest-reaching and longest-lasting impacts of the Covid-19 pandemic has been its impact on the global supply chain—a massive disruption that has increased scarcity, raised prices and introduced delays for a wide variety of products. The impacts have been particularly acute for products that require semiconductors, including everything from gaming consoles and phones to vehicles and healthcare devices. Now, the European Commission is proposing a “comprehensive set of measures to ensure the EU’s security of supply, resilience and technological leadership in semiconductor technologies and applications”: the European Chips Act, which, if passed, is anticipated to bring €43 billion ($49.2 billion USD) of public and private funding to bear on the European semiconductor industry through 2030.
The state of Europe’s semiconductor supply chain
The Commission notes that Europe is “strong in some specific areas” related to semiconductors: the design of components, for instance, or general semiconductor research. Europe, it says, “is also 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.”
But the Commission also noted that Europe’s chip supply is fragile: in cases of major disruptions, some of those reserves could be depleted in just a few weeks. And the continent, of course, has no leading-edge (≥7nm) chip manufacturing capabilities. Furthermore, they say, Europe has “strong dependencies” in design, packaging and assembly processes.
All of this adds up to a troubling dynamic that came to a head during the pandemic—the Commission said that car production in some of the EU’s member states decreased by a third in 2021 alone due to semiconductor supply chain disruptions. Further, the Commission projects that the current shortage is “unlikely to phase out before 2023 or even 2024.”
The European Chips Act, the Commission argued in a report to its members, “is the only way for Europe to have the means to achieve the leverage required in times of crisis and keep the global supply chains running despite the new geopolitics of supply chains at play.”
“The European Chips Act will be a game changer for the global competitiveness of Europe’s single market,” said Ursula von der Leyen, president of the European Commission. “In the short term, it will increase our resilience to future crises, by enabling us to anticipate and avoid supply chain disruptions. And in the mid-term, it will help make Europe an industrial leader in this strategic branch. With the European Chips Act, we are putting out the investments and the strategy. But the key to our success lies in Europe’s innovators, our world-class researchers, in the people who have made our continent prosper through the decades.”
But truth be told, the pandemic and ensuing supply chain disruptions only accelerated the situation: “digital sovereignty” has been a mainstay of EU tech policies in recent years, with efforts like EuroHPC and the European Processor Initiative (EPI) working to bring supercomputer and chip outsourcing back home. In the documents establishing the EuroHPC JU, the Commission noted that Europe consumes around 30 percent of the world’s HPC resources, but its own vendors hover around five to six percent market share in the Top500 systems (predominantly via Atos with its 5.2 percent). The European Chips Act is the latest salvo in this ongoing effort.
What is the European Chips Act?
The idea of a European Chips Act was first teased by von der Leyen during her State of the Union speech last September. “We will present a new European Chips Act,” she said at the time. “The aims to jointly create a state-of-the-art European chip ecosystem, including production.” Now, the Act has been outlined in much greater detail, including its three main components.
The Chips for Europe Initiative
Chief among these components is the Chips for Europe Initiative, which would provide funding “to strengthen existing research, development and innovation, to ensure the deployment of advanced semiconductor tools, pilot lines for prototyping, testing and experimentation of new devices for innovative real-life applications, to train staff and to develop an in-depth understanding of the semiconductor ecosystem and value chain.”
“[A] large-scale design infrastructure for integrated semiconductor technologies will be built through a virtual platform available across Europe,” the report details. “Stakeholders including innovative SMEs and [research and technology organizations] will have access to the design infrastructure, with clear IP rules.” EDA tools, the Commissions says, will be supplemented by features aimed at ensuring energy efficiency and strong security.
Those pilot lines, meanwhile, are specifically targeted at technologies like quantum, AI and neuromorphic hardware and would be linked to the design platform. The Commission specifically makes mention of pilot lines for FDSOI (10nm and below), leading edge nodes (below 2nm), and 3D heterogeneous systems integration and advanced packaging.
That funding—the Commission ballparks it at €11 billion (~$12.6 billion USD)—would be pooled from the Union itself, its member states, private-sector participants and additional countries participating in EU programs.
The Commission acknowledged that ensuring the development of full European semiconductor facilities is, of course, a massive undertaking. “Private investment in these advanced facilities may likely require significant public support,” it wrote, adding that this introduces a need for “a case-by-case assessment.”
The Act aims particular support at first-of-their-kind facilities in the EU, split into two categories: open EU foundries (foundries that largely work with other industrial players) and integrated production facilities (foundries that work to serve their own markets). Being classified as a first-of-its-kind facility in either category, the Commission says, would trigger fast-track permitting and pilot line access.
Chips for Europe would also support education, training, skill development and retraining through specific items like postgraduate programs in microelectronics, training courses, job placements and so forth.
The Chips for Europe Initiative, the Commission wrote, would take place mainly through what it’s calling the “Chips Joint Undertaking,” and it would be advised by the European Alliance on Processors and Semiconductor Technologies. The Chips JU would be implemented by the preexisting Digital Europe and Horizon Europe programs. (Funding for the EuroHPC JU similarly came from the Digital Europe and Horizon Europe programs.) All of this work, they said, would also help the EU meet its preexisting goal that, by 2030, “the production of cutting-edge and sustainable semiconductors in Europe should be 20% of world production” (a doubling of the EU’s status quo market share and part of the Commission’s “Digital Compass”).
“The Chips for Europe Initiative is closely linked to Horizon Europe and will rely on continuous research and innovation to develop the next generation of smaller and more energy-efficient chips,” said Mariya Gabriel, commissioner for Innovation, Research, Culture and Youth.
The Chips Fund
The second major component: a “new framework” designed to attract investment, spur production and, overall, ensure security of supply. This framework would be predominantly supported by a “Chips Fund,” which would help finance startups through two mechanisms: a dedicated semiconductor equity investment facility (operated under the InvestEU program) targeted at SMEs and developed in close collaboration with the European Investment Bank Group; and grants and equity from the European Innovation Council (EIC) of Horizon Europe to support high-risk, innovative SMEs in the semiconductor and quantum sectors. The Commission says that the Chips Fund would have “at least” €2 billion to work with.
Coordination tools
Third: a monitoring and coordination mechanism for tabulating and evaluating the semiconductor supply chain, as well as recommending and organizing action in the event of a supply chain disruption. The Commission says that this mechanism would “react swiftly and decisively” on behalf of the EU using both national and EU-level tools. As part of the announcement, the Commission also revealed a recommendation to its member states to adopt at the national level a tool to enable this inter-state coordination.
Geopolitical pressure
The Commission’s proposal comes on the heels of similar efforts from other major players: in the United States, for instance, the CHIPS Act (in this case, an backronym for “Creating Helpful Incentives to Produce Semiconductors”) would provide $52 billion for domestic fabrication and R&D efforts. (CHIPS was recently passed by the House as part of the America COMPETES Act and is now headed to the Senate for reconciliation.) Similarly, China and Japan are investing many billions of dollars in domestic semiconductor capacity.
Indeed, the Commission cites these efforts in its documentation for the proposal. It also mentions the generally less hospitable nature of globalized manufacturing in 2022, citing “growing geopolitical tensions, fast growth in demand and the possibility of further disruptions in the supply chain.” (It’s not all competitive for Europe, though, with the Commission also emphasizing the importance of “building balanced semiconductor partnerships with like-minded countries” such as the United States, Japan, South Korea, Singapore and Taiwan.)
What’s next?
However, the Act is not a done deal. Right now, it’s a proposed regulation; now that it’s been proposed, it will have to go through the EU’s legislative process, including the European Parliament.
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February 11, 2022 at 02:00AM
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