Huge investment in semiconductors aim to increase EU and USA chip supply
EU and USA semiconductor manufacturers are set to receive one of the largest state investments ever made in this industry. Legislation passed in 2022 in the USA and potentially this year in the EU will see billions of dollars and euros set aside for all aspects of the manufacturing of semiconductors, the aim of which is not only to secure their supply, but to make both regions global leaders.
It will lead to an increase in the building and upgrading of manufacturing plants, further research and development, and training of people for what is considered a vital industry for economic strength and security.
In recent years, both the EU and the USA have been exposed to the global shortage of semiconductors or chips which has had a knock-on effect of disrupting global supply chains.
As chips are a vital component in all electronic products, their function and value cannot be overestimated. Without chips electronic products ranging from consumer electronics to cars, from embedded systems such as GPS technology to lighting and LED displays, could not be manufactured. This effects the production of existing products but also companies who are innovating and advancing technology – simply put, chips are vital for products which have any electronic element, whether old, new or being prototyped.
The knock-on effect of such a shortage has led to global supply chains, often based on a ‘Just-in-time’ model whereby large numbers of chips are not held in inventory, being disrupted which has led not just to product shortages, but in some cases factory closures.
Why pass legislation?
The separate legislation proposed by both the EU and USA has similar aims. Broadly speaking, they aim to strengthen the domestic semiconductor environment, to ensure the resilience of supply chains, and to reduce the dependence on imported chips.
Presently, most chips are manufactured in East Asia and in particular Taiwan, with 60% of all chips manufactured there in 2021. Furthermore, with regard to the most advanced chip technology, Taiwan holds more than 90% of the global market share.
Both the EU and the USA are concerned with the geo-political situation in East Asia and have concerns about how vulnerable the chip industry is there. Furthermore, the Covid-19 pandemic exposed how dependent the EU and the USA are on the offshore manufacturing of chips. During the pandemic, lockdowns resulted in supply chain disruption while one leading chip manufacturer stating that the European chip manufacturing capacity runs the risk of falling below 4%, which would make it virtually irrelevant.
What is the European Chips Act?
The European Chips Act, adopted by the European Commission on 8 February 2022, is seen as a key step for the EU’s technological sovereignty and to ensure it meets its digital target of doubling its global market share in the manufacture of chips to 20%. The budget for the act is around €43 billion which may double once private investment is taken into account.
According to the European Commission, the legislation has five objectives:
- Strengthening research and technological leadership.
- Building and reinforcing Europe’s capacity to innovate in the design, manufacturing and packaging of advanced chips.
- Putting in place an adequate framework to increase production by 2030.
- Addressing the skills shortage and attracting new talent.
- Developing an in-depth understanding of global semiconductor supply chains.
It also has three main components:
- A Chips for Europe Initiative to support large-scale technological capacity building and innovation in cutting-edge chips.
- A new framework to attract large-scale investments in production capacities and ensure the security of supply.
- A coordination mechanism between the Member States and the European Commission to monitor market developments and anticipate crises.
Along with the EU’s €43 billion investment, private companies are also investing in the bloc, for example, Intel has pledged to invest €50 billion in Europe while certain European chip makers are also expanding their facilities.
What is the USA’s CHIPS Act of 2022?
In the USA, Congress passed the CHIPS Act of 2022 last July to try to reverse the decline in the domestic manufacturing of chips which has seen production drop from 37% in 1990 to 12% today.
In summary, the legislation offers financial incentives for chip manufacturers to produce chips in the USA and thereby ensuring that access to these critical electronic components is never cut off.
It aims to jump-start research and development and the commercialisation of technologies such as quantum computing, artificial intelligence, clean energy and nanotechnology. According to the USA Department of Commerce, the shortage of semiconductors has affected the USA economy to the tune of a quarter of a trillion dollars in 2021.
The act will invest $280 billion over the next decade into the USA semiconductor industry, with a focus on the following areas:
- $200 billion is for scientific R&D and commercialization
- $52 billion is for chip manufacturing, R&D and workforce development
- $24 billion for tax credits for chip production
- $3 billion for programs aimed a leading-edge technology and wireless supply chains
From the USA’s perspective, both Covid-19 and more recently, the war in Ukraine has influenced the act as the defence industry is heavily dependent on chips. The USA has been a major donor of modern weapon systems to Ukraine which can use hundreds of chips in each system. Replenishing such systems will require large quantities of chips.
Semiconductor Chips Act – the global outlook
The EU and the USA are not the only places which are investing in semiconductors. China’s five-year plan leading up to 2025 supports technology and innovation, while South Korea is also investing in supply chains.
This demand for chips and the huge investment around the world will lead to a rise in the demand for semiconductor commissioning and also the decommissioning of older plants. Globally, it is predicted that at least 81 new chip facilities which will be built between 2021 and 2025.
Ten will be built in Europe with 14 in the USA, while 21 will be built in Taiwan, the rest will be built in China, Japan, South Korea and Southeast Asia.
Commissioning – LotusWorks Operations and Maintenance
In today’s technologically advanced world, semiconductor chips are key components in an increasingly diverse range of products. From computers to cars, these tiny pieces of technology have become essential components that enable us to enjoy the convenience of a connected lifestyle.
LotusWorks’ technical and engineering experts work with our semiconductor clients across EMEA & North America to help them make a difference in creating the technology of today and innovating for tomorrow. Our teams play an essential role in helping to alleviate some of the strain that has been placed on our semiconductor clients.
We have over 650 technical and engineering experts who work in 24 locations across the USA and EMEA, assisting our world-leading clients to manufacture semiconductors. Our specialist knowledge, along with our collaborate approach, is internationally respected and we tailor our solutions to each client. LotusWorks is headquartered in Sligo, Ireland, from where we serve our European clients, and have two head offices in the USA serving our USA clients.