Editor’s comment: Strengthening Europe’s microelectronics ecosystem...

Author : Mark Gradwell | Editor | EPDT

02 February 2022

Mark Gradwell, Editor, EPDT
Mark Gradwell, Editor, EPDT

Over the last two years, a perfect storm of factors – with the COVID-19 pandemic at its heart – has helped expose the peril, flaws & gaps in the global supply chains we have come to take for granted. And few sectors have felt this as keenly as electronics – with a global semiconductor shortage hitting it hard, and its ripple effect impacting the many other industries that now depend on microchips to deliver their products.

This editorial leader was originally featured in the February 2022 issue of EPDT magazine [read the digital issue]. And sign up to receive your own copy each month.

Let’s examine how Europe is looking to strengthen its microelectronics ecosystem through a long-term, forward-looking semiconductor chip design and manufacturing strategy, underpinned by regulatory framework…

Semiconductors are a key foundational technology powering all the electronic devices and many of the machines we use today – from smartphones, gaming consoles and computers, to wearables, IoT devices and ADAS functionality in cars. With even contactless payment cards and passports, or industrial robots and smart machines in factories, depending on them, these tiny components are the heart – or perhaps more accurately, the brain – of almost every device we rely on. This puts them at the core of the modern world’s ongoing digitisation, as more and more everyday devices incorporate electronics to add sensing, intelligence and connectivity, making chips essential to virtually every industry and sector.

As global supply has been challenged to meet an explosion of demand driven by smartphones, IoT, EVs and connected cars, cloud technologies and 5G, the events of the last few years have only exacerbated the problem. These include the coronavirus pandemic, US-China trade tensions under former US President Trump, and an unprecedented series of freak events in the supply chain (including various weather-related natural disasters, fires at production plants and even ships getting stuck in the Suez Canal). COVID has arguably had a double impact, with early lockdowns resulting in factory shutdowns and disruptions in the production and supply chain, plus the subsequent shift to working from home resulting in major structural shifts in demand across multiple sectors, from automotive to computing and consumer electronics.

This supply crunch has very real consequences for Europe’s economy, employment and even leisure. Chips may bring a wealth of opportunities for technological advancements – underpinning a range of economic activities, and even helping improve energy efficiency and security levels – but supply shortages result in knock-on impacts for production: automakers postpone production of vehicles; network providers run out of routers; and gamers can’t get their hands on the next big console.

Addressing (virtually) the World Economic Forum’s Davos Agenda a few weeks ago (in January 2022), European Commission President Ursula von der Leyen acknowledged that the global shortage of semiconductors has led to slowdowns in production across a range of industries and products that rely on chips to drive data processing – from cars and trains to smartphones and other consumer electronics – amplifying concern about European capacity in this area. “There is no digital without chips,” said von der Leyen. “While we speak, whole production lines are already working at reduced speed – despite growing demand – because of a shortage of semiconductors.”

At the turn of the century, Europe was a leading producer of semiconductors, home to almost a quarter of global manufacturing capacity. But two decades later, output has dropped to less than 10% – with an even greater decline in leading-edge semiconductor technologies, as market share has dropped from around 20% to virtually zero today. Meanwhile, production in Asia, particularly Taiwan, has soared – and Europe has become reliant on that supply chain: “A dependency and uncertainty we simply cannot afford,” von der Leyen explained. “While global demand has exploded, Europe’s share across the entire value chain, from design to manufacturing capacity, has shrunk. We depend on state-of-the-art chips manufactured in Asia. So this is not just a matter of our competitiveness. This is also a matter of tech sovereignty. So let’s put all of our focus on it.”

“We need to radically raise Europe’s game on the development, production and use of this key technology,” she told The Davos Agenda. A new European Chips Act, to be proposed in February 2022, aims to increase microchip production across the continent in response to rising demand, and to reduce dependency on suppliers from outside Europe, strengthening Europe’s semiconductor and microelectronics ecosystem resilience and competitiveness. “By 2030, 20% of the world’s microchip production should be in Europe,” von der Leyen said. “Bearing in mind that the world’s production itself will double, this means quadrupling today’s European production.”

The European Chips Act will be central to ensuring the funding, suppliers and networks critical to Europe’s semiconductor ecosystem. With nothing off the table, the new act will enable progress in 5 key areas, von der Leyen explained:
  1. Strengthened R&D and innovation capacity in Europe;
  2. Ensure European leadership in design & manufacturing;
  3. Relaxing of state aid rules to allow public support – for the first time and under strict conditions – of European, first-of-a-kind production facilities that benefit all of Europe;
  4. Improved ability to anticipate and respond to shortages and supply issues in the area;
  5. Increased support for smaller, innovative companies in accessing advanced skills, industrial partners and equity finance.

This approach is aimed at building on Europe’s strategic position in embedded electronics to ensure it remains a global centre of technological excellence and leadership in driving disruptive innovation – but von der Leyen was keen to point out that this is not about protectionism. “Europe will always work to keep global markets open and connected. It is in the world’s interest, and in our own. But we do need to tackle the bottlenecks that slow down our own growth… We will create more balanced interdependencies. And we will build supply chains we can trust by avoiding single points of failure.”

EPDT's February 2022 issue also contains features on Embedded technologies and Mil/Aero applications. Read more on what's inside EPDT this month

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