The European Commission unveiled its EU Chips Act today, with the aim of quadrupling its semiconductor production by 2030 – but with new funds very limited and high dependency on EU state contributions it may struggle to make its vision a reality.
The commission announced a public funding package of €11 billion, much of which is made up of previously-allocated funds such as the €3.6 billion Key Digital Technologies Joint Undertaking announced in November 2021. The Commission claimed “policy-driven investment” would total around €43 billion – “on the basis of announcements to date” – made up of both public investment and “leveraged equity support”.
Other sources of funding such as Horizon 2020 and the Important Projects of Common European Interest (IPCEI) fund will also go into the EC's efforts to boost semiconductor production to gain a 20% market share by 2030. But many commentators noted the EU's calculus in reaching the €43 billion figure – equivalent to $49 billion, and close to matching the US's $52 billion semiconductor initiative – was opaque.
Tech trade association DigitalEurope welcomed the EU Chips Act’s focus on building competencies and on making it easier for large fabs to be built. But it also expressed significant reservations with the published proposals – especially on EU member state funding.
“It is still unclear how much indirect funding (money coming from member states) will be secured, and how it will be spent. More clarity on the size and source of funding especially for research and development is needed,” said Cecilia Bonefeld-Dahl, DigitalEurope’s director-general in a canned statement reacting to the EU Chips Act. “On monitoring, reporting obligations should be kept to a minimum. We caution against excessively broad reporting obligations that add administrative burden on companies and create risks of duplication.
“The EU attracted just 3% of global investment for chip factories in 2020 and a lot of work is needed to push this figure upwards. To achieve the target of 20% of global chip production by 2030, bolder efforts need to be made. The European Chips Act is a step in the right direction, but we should never neglect how crucial international collaboration is,” she added.
'A first step'
Johan Aurik, partner and chairman emeritus of Kearney, was somewhat more optimistic, telling The Stack the EU Chips Act was "an important step, but a first step".
"The amounts announced go a long way to make that happen, but it is also likely that more will be needed in the years ahead," said Aurik in an email. "As indicated in the recent Kearney report on the future of semiconductors, the total cost of producing chips in Europe is 30-40% more expensive than in Taiwan or South Korea, two key semiconductor-producing regions.
"Based on our analysis, around 80% of the cost difference is in government incentives, so bridging that gap with EU and national investment support is crucial in attracting investments in Europe. Investing in semi-conductor production, particularly for leading-edge chips, is highly complex, very expensive and will take time. To make this a reality requires a combination of both government support (EU and national), European industry investments and global partnering. It is crucial commitments to do so are made soon," he added.
State aid rules relaxed, not changed
Perhaps more significant than direct funding by the EU will be the potential relaxation of state-aid rules, which will allow up to 100% public funding for projects which are designated as “first-of-a-kind” – which the Commission clarified as meaning first-of-a-kind in Europe. This opens the door to a wider variety of facilities, given the EU’s complete absence of cutting-edge sub-10nm fabs.
This will be decided on a case-by-case basis, however – so is highly dependent on the EC’s judgement around future fab proposals. At a press conference following the EU Chips Act announcement, commission executive vice-president Margrethe Vestager and commissioner Thierry Breton suggested the rules were being clarified rather than changed.
Aurik said: "Relaxing rules around state aid will help the EU semiconductor industry reach the goals the EU has set out in the Chips Act. The flexibility it provides is important, but just as much is the clarity it provides, after years of debate."
See also: Europe to crack down on foreign subsidies, boost indigenous chip capabilities
The Commission also announced the potential for export controls for semiconductors, which would allow the EU to restrict sales of chips outside the bloc. But Vestager downplayed the likelihood of such measures being used at the EU Chips Act press conference.
“When it comes to priority making, it's really important for us that this is not seen as a strategy for Europe to be self-dependent, only to produce chips for ourselves. I've been told the up-front investment to do that would be in the area of between €240bn and €320bn, and even if you had that kind of money, where to find the capacity to build it?” she said.
“The point is that Europe should have a much stronger foothold in the global value chain and global supply chain. First things first, if there is a crisis we would want to turn to international partners. International partnership... would be our first port of call in order to find a cure. Restrictions on chips produced in Europe to be also delivered to European customers would be a last resort, after in-depth consultation with member states.”
More public procurement following EU Chips Act
Iana Dreyer, founder and editor of Borderlex, a Europe-focused trade publication, told The Stack the move towards export controls codifies an approach the EU began during the COVID-19 pandemic as regards vaccines. She said the EU Chips Act "sets in stone the Commision practice of launching large public procurement tenders to boost production".
Regarding the potential for export controls, Dreyer said: “Both Vestager and the more market-interventionist internal market commissioner Breton repeated that any export restriction in the EU would be 'a last resort'. For Breton the existence of such a measure would mainly serve as 'leverage' in negotiations with third countries should these restrict critical supplies of products.
"The aim of [the international partnerships discussed by the EC] would be to ensure that in crisis times these countries do not resort to trade restrictions and also, as they all have started massively subsidising their semiconductor industry, that they don't engage in mutual trade wars. With the United States the conversation has already started as part of the recently established EU-US Trade and Technology Council," she added.
Intel released a statement welcoming the proposals: "We are currently considering a significant increase in our European footprint, and we expect that the EU Chips Act will facilitate these plans."
Purely by coincidence, late last month the EU General Court annulled a decade-old €1.06bn fine levied by the EC against Intel for abusing rebate schemes.
Read the full set of EU Chips Act announcements here.