The EU’s semiconductor “ambition” is becoming more determined.
On November 23, the news showed that EU countries agreed to allocate more than 40 billion euros to enhance the EU’s semiconductor production capacity. Some media quoted people familiar with the matter as saying that the agreement was supported by European ambassadors. At the same time, the agreement will expand the scope of “first of a-kind” chip factories, which are eligible for state assistance, but will not include all car chips. It is reported that EU ministers are expected to approve the agreement at their meeting next month.
In February this year, the European Commission announced the long-awaited A Chips Act for Europe. According to the bill, by 2030, the EU plans to use more than 43 billion euros of public and private funds to support chip production, pilot projects and start-ups, and vigorously build large chip manufacturers. The EU also proposed an ambitious goal in the bill to increase the share of chip production in the world from 10% to 20% by 2030.
It is worth noting that just a few days before the European Chip Act, the US House of Representatives passed the 2022 US Competition Act, which includes more than US $50 billion in financial support for the chip manufacturing industry. Later, the “thin version” of the Chip and Science Act was passed and officially signed into force by US President Biden. In addition to the United States, South Korea, Japan, India and other countries have also introduced policy support and guidance related to the semiconductor industry.
Hu Jie, a practical professor of Shanghai Advanced School of Finance, Shanghai Jiao Tong University, told the 21st Century Economic Reporter that the outbreak of the epidemic, the changes in the supply chain, and the Russian Ukrainian conflict had brought about a new layout of the world supply chain. Especially for key industries such as semiconductor, the layout of countries has gradually changed from the original economic efficiency priority to national security priority.
In Hu Jie’s view, for the development of the local semiconductor industry, more than 40 billion euros proposed in the EU bill is just a drop in the bucket. The most important thing is to show an attitude, optimize the industrial ecological environment, and leverage a large amount of private investment.
Photo source: People’s Vision
Ambition: double the market share to 20%
There is no digital without chips.
On September 15, 2021, European Commission President Von Delain put forward this sentence when he delivered his annual State of the Union address. At that time, Von Delain further said that due to the shortage of semiconductors, although the demand was growing, the entire production line was already operating at a low speed. Despite the explosive growth in global demand, Europe’s share of the value chain (from design to manufacturing) has shrunk.
She stressed that this is not only a question of competitiveness, but also a question of technological sovereignty. Against this background, Von Delain said that the European Union would propose a European chip bill.
In February 2022, the closely watched European Chip Act was officially launched, hoping to solve the shortage of semiconductors and strengthen Europe’s leading position in technology. Specifically, this bill contains multiple objectives, including strengthening European research on “smaller and faster” chips, strengthening innovation capabilities in high-end chip design, manufacturing and packaging, solving the problem of skills shortage, hoping to attract more talents and cultivate skilled labor. The most notable is to increase the share of chip production in the world from 10% to 20% by 2030.
The EU believes that Europe has advantages in specific areas of semiconductors, such as the design of power electronic components, RF and analog devices, sensors and microcontrollers (these devices are widely used in the automotive and manufacturing industries), and Europe is also in a very favorable position in terms of materials and equipment needed to operate large chip manufacturers.
However, Europe’s overall share in the global semiconductor market is only 10%, and to a large extent depends on third country suppliers. According to the data released by the EU, in the semiconductor supply chain, the EU’s market share in the equipment manufacturing field is 23%, in the raw material/silicon chip field 14%, in the chip design field 8%, and in the IP/electronic design field only 2%.
Considering the rapid growth of demand, the possibility of further disruption of the supply chain and the geopolitical tension, the EU believes that it must play its own advantages, establish an effective mechanism, and establish a greater leadership position in the global industrial chain to ensure supply security.
In addition, according to the report recently released by the American Semiconductor Industry Association (SIA), in the field of semiconductor design, the market share of Europe has a significant downward trend, from 12% in 2005 to 10% in 2020, and it is predicted that it will further decline to 8% in 2030. Under the increasingly fierce market competition, the EU has rapidly promoted the legislative process in the chip field.
Geng Jiashuai, the general manager of Wanchuang Investment Bank, told the 21st Century Economic Reporter that the European bill was mainly driven by two reasons. First, on the level of industrial supply chain security, the EU hopes to better develop automotive, consumer electronics and other industries and ensure that they are not restricted by other countries. Second, at the national security level, semiconductor is widely used in the field of national security, such as missiles, aircraft, launch vehicles, etc. At present, many countries, including Europe, are increasing their investment in the semiconductor industry.
Current situation: differentiated development and supply crisis
According to the experts interviewed, the semiconductor industry has long been on the road of differentiation.
Mo Dakang, semiconductor industry consultant of Anbang Think Tank, told reporters of the 21st Century Economic Report that, for example, Samsung works as memory, TSMC works as OEM, Intel works as CPU, Nvidia works as GPU, and the three major European factories work as auto electronics and power electronics.
The three major manufacturers mentioned refer to the leading semiconductor enterprises in Europe, including Infineon, NXP and Italian French Semiconductor. In the field of automotive semiconductor, these three European enterprises are far ahead in the market position.
Data shows that in the automotive semiconductor market, Infineon’s sales in 2021 will reach 5.725 billion US dollars, ranking first in the world, followed by NXP, with an annual sales of 5.493 billion US dollars, and Italy France Semiconductor will rank fifth with an annual sales of 3.65 billion US dollars. In terms of market share, the three accounted for 8.3%, 8.0% and 5.3% respectively. Mo Dakang believes that although the process of the above enterprises is not the most advanced, the overall level is high and they are also in a monopoly position in the world.
At the same time, ASML, a Dutch photolithograph manufacturer, is also in a leading position in the field of photolithography, and chip manufacturers such as TSMC, Samsung, Intel and Nvidia are its customers. According to the financial data released by the company, ASML’s annual net sales reached 18.6 billion euros last year, with a gross profit margin of 52.7% and a net profit of 5.9 billion euros, making a lot of money.
However, even if the leading enterprises are strong, the changes in the global supply chain also make the EU more uneasy.
“The recent global semiconductor shortage has forced factories in many industries, such as automobiles and medical equipment, to close. In the automotive industry, the output of some member countries will decline by one third in 2021. This clearly shows that under the complex geopolitical background, the semiconductor value chain is extremely dependent on a few participants worldwide, which also shows the importance of semiconductors to European industry and society.” The EU stated this in its press release introducing the bill.
Geng Jiashuai told reporters that since 2020, the impact of the epidemic has impacted different supply chains in various countries, including semiconductor. In recent years, both the development of new energy vehicles and the expansion of new consumer electronics have pushed the use of semiconductor chips to a new height. However, as the epidemic continues, it has led to a serious run on global production capacity and a sharp decline in chip supply capacity. In recent years, the problem of economic globalization has also become a driver of the supply crisis.
Moreover, in the process of chip manufacturing, each link of the upstream, middle and downstream is closely connected. “For example, Taiwan’s wafer foundry market accounts for more than 60%. Even if the foundry is in the middle and lower reaches, if it is missing, the chip will also face the risk of supply interruption. This has also become one of the main reasons for restructuring the semiconductor industry chain in Europe, the United States and other countries.” Hu Jie said.
It is worth mentioning that the European market ushered in the investment action of semiconductor giants shortly after the promulgation of the bill. In March this year, Intel announced that it planned to invest as much as 80 billion euros in the EU in the next 10 years, covering the entire semiconductor value chain, from research and development to manufacturing to packaging.
Pat Geisinger, CEO of Intel, said: “The investment we plan to make is a significant step for Intel and Europe. The EU Chip Act will authorize private enterprises and governments to cooperate to significantly improve Europe’s position in the semiconductor industry.” According to Intel, the core of the investment plan is to balance the global semiconductor supply chain and significantly expand Intel’s production capacity in Europe.
The EU has high hopes for this bill. According to Vondrein, the bill will change Europe’s global competitiveness. In the short term, it will enable the EU to predict and avoid supply chain disruption, thereby improving its resilience to future crises; In the medium term, it will help the EU become a leader in the chip strategic market.
Geng Jiashuai believes that the chip support policy can probably promote the development of the local semiconductor industry, but the policy should be refined to specific guidelines. It remains to be seen whether semiconductor companies can get the most effective support. In Mo Dakang’s view, “the laws of globalization and fair competition will not change, and it is impossible for every family to develop in an all-round way. Europe itself has done a good job of differentiation. Now we need to reinvest and layout. I have reservations about whether this plan can succeed.”
Future: Safety considerations dominate
In recent years, many countries have introduced semiconductor related policy incentives, which means that competition is getting stronger.
Specifically, in May 2021, South Korea announced the strategy of “K-semiconductor industry belt”, which plans to build the world’s largest semiconductor industry supply chain in China by 2030; In December 2021, the Japanese government set up a special fund of 774 billion yen in the latest supplementary budget to support the development of domestic cutting-edge chips; India also approved a US $10 billion semiconductor industry incentive plan in December last year, with half of all project costs borne by the government.
It is worth mentioning that the promotion of the chip bill in the United States has also accelerated the legislative process of the EU to a certain extent. In February this year, the former US House of Representatives passed the 2022 American Competition Act, and the later European Chip Act was introduced.
The 2022 American Competition Act has nearly 3000 pages, and the key content is to invest more than 50 billion dollars in the chip manufacturing industry. After a game between the Senate and the House of Representatives, the “thin version” of the Chip and Science Act was issued and passed. In August this year, Biden officially signed the bill. In addition to huge subsidies, the Chip and Science Act also involves provisions to curb competition. The China Council for the Promotion of International Trade and the China Chamber of International Commerce have issued a statement against the improper intervention of the US Chip and Science Act and the restriction of the global business community’s economic, trade and investment cooperation.
According to the transcript on the website of the European External Action Agency on November 22, the European Union Foreign and Security Policy High Representative Borrell said in the debate of the European Parliament that semiconductor is indeed the most basic technical problem in the economic competition in the 21st century. At the same time, he also mentioned that the United States is the most important ally of the EU, but in some cases, the EU’s position or approach towards China will be different.
In addition, the European Chip Act mentioned that, in view of the globalized semiconductor value chain, the EU should establish a strong international partnership, especially with like-minded partners.
In terms of the global pattern, Hu Jie believes that with the change of the international situation, it will be a major trend to strengthen the independent development of China’s semiconductor industry. In the long run, countries may slightly return to the economic logic itself, but in the short term, they believe that security considerations still dominate.
Post time: Nov-30-2022