Europe Lays its Chips on the Table

­The EU has finally passed its Chips Act. According to the EU, the European Chips Act was designed to address semiconductor shortages and strengthen Europe’s technological leadership. The act will make more than € 43 billion of public and private investments available to build a European based semiconductor supply chain. In reality, that means that there is funding available for companies that wish to invest in the semiconductor supply chain in EU countries. After the COVID-19 pandemic caused major disruptions to the global semiconductor supply chain for the last two years, the EU decided that keeping production closer to home was preferable to relying on trade rivals for critical goods. Other countries, including the US, Japan, and South Korea have done much the same.

A lot of Europe’s manufacturing relies heavily on semiconductors. Car manufacturing especially took a large hit due to the shortage of chips. Europe is very strong in the design of chips, but the vast majority of manufacturing has been outsourced to the Far East over the last 30 years. The most important of those countries is Taiwan, which is currently under threat of invasion from China. The next generation of electronic devices will be based on AI technology, and ensuring access to the complex chips that will power AI is vital to the EU’s economy. After the shortages during COVID, no country wants their economic prosperity to rely to depends on others as much as they can help it. 

Currently, Europe only manufactures around 10% of the world’s semiconductors, which is pretty low for a region that includes four of the world’s ten biggest economies. As the majority of EU manufacturers take just-in-time approach to manufacturing, even a relatively small disruption in the supply chain can have serious knock-on effects.

Since the Chips Act was first announced, many semiconductor manufacturers have made plans to build new fabs in Europe. For example, Intel plans to spend around $88 billion in Europe, including building a major complex in Magdeburg Germany, and the company is also in discussions with the Italian government to make chips there. Another world leader in chip manufacture, TSMC is also rumoured to be in negotiations to set up its first European plant in Dresden, which with Nexperia and other fabs is fast becoming the European semiconductor hub.

Dresden is also the location for a big investment from Infineon, and one that is further along than most. At the beginning of May, the company broke ground for a new fab alongside its existing operation in Dresden. The groundbreaking was attended by EU Commission President Ursula von der Leyen, German Federal Chancellor Olaf Scholz, Saxony's Prime Minister Michael Kretschmer and Dresden's Mayor Dirk Hilbert. The 5 billion euro manufacturing plant will be the biggest in the company’s history, and potentially the most environmentally friendly fab of its type.

It definitely looks like chips are back on the menu for the EU.