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Chip not cheap — EU writes check to reduce chip dependence, but doubts remain

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Chip not cheap — EU writes check to reduce chip dependence, but doubts remain

(Xinhua) 16:03, February 16, 2022

BRUSSELS, Feb. 16 (Xinhua) — The European Commission proposed a chip act last week in a bid to reduce the European Union (EU)’s dependence on imported chips and improve its presence in global chip market.

Officially known as the European Chips Act, it aims to mobilize 43 billion euros (48.8 billion U.S. dollars) of public and private investment into the semiconductor industry, and double the bloc’s current market share from 10 percent to 20 percent by 2030.

That’s definitely a hefty check for the still COVID-afflicted bloc. However, as the EU’s fiscal outlook is still laden with uncertainties caused by spiking inflation and higher debt, doubts remain as to whether the expensive plan is sufficient to achieve its chip ambition.

A GAME CHANGER?

European Commission President Ursula von der Leyen described the European Chips Act as “a game changer for the global competitiveness of Europe’s single market.”

“In the short term, it will increase our resilience to future crises by enabling us to anticipate and avoid supply chain disruptions,” she said, “And in the mid-term, it will help make Europe an industrial leader in this strategic branch.”

According to Jan Frederik Slijkerman, sector strategist at ING, a financial services company, the act would help the EU become less susceptible to supply disruptions.

“The act most likely will help the local production of advanced semiconductors and therefore will reduce Europe’s dependence on the global supply chains,” Slijkerman added.

Executive Vice-President for a Europe Fit for the Digital Age Margrethe Vestager stressed the need for the EU to expand the production of smaller semiconductors.

“Our manufacturing capabilities are almost all located in what we call ‘legacy chips.’ They are larger chips,” said the vice president, noting that “we also need smaller, cutting-edge chips in order to drive our green and digital transformation.”

SPILLOVER EFFECTS

“We expect positive spillover effects, whereas a leading edge fabrication plant can drive investments in the European and other supply chains, including research and development (R&D),” said Slijkerman.

“The existing companies that predominantly focus on mature technology microchips will probably benefit from subsidies in R&D as well as from an improvement of the local ecosystem,” he said.

Otto Raspe, an expert in regional economic ecosystems with Dutch banking company Rabobank, said, “the Chips Act can really create more mass and fits national and EU-level strategies to further exploit these unique technologies and regional clustering.”

Talking about the potential effects of the act, Raspe noted, “the Chips Act should not only be formulated on macro and sector level, but it definitely needs a geographical determination.”

In a position paper, Dutch semiconductor manufacturer ASML said the act “needs to secure Europe’s relevance in the global semiconductor ecosystem by focusing not only on increasing microchip production capacities, but also on the capabilities and performance of European products and technologies that other parts of the world rely on.”

UNCERTAINTIES AHEAD

While many experts have underlined the bright side of the act, “there are doubts in the market if the amount (to be invested) is sufficient to achieve a 20 percent market share by 2030,” Slijkerman cautioned.

A large part of the funds earmarked for financing the chip industry are dependent on national budgets or private investments. As inflation is on the rise in many EU countries, both public and private finances are facing mounting pressure, making the prospect of the act even more doubtful.

In 2013, the European Commission presented a similar plan “for coordinated public investments in micro- and nano-electronics, such as semiconductors and computer chips, designed to expand Europe’s advanced manufacturing base.” But apparently, the plan did not meet its goals. Chip shortages are still a thorn paining many industries within the bloc.

This time, as some experts noted, there is still a big question mark over whether the act could actually help reduce EU’s chip dependence.

Thierry Breton, European commissioner for the internal market, said that in order to “move from the laboratory to manufacturing,” the EU will likely need to rely on the world’s leading chips manufacturers.

An ING report on the act said, “currently there are no large fabrication plants in Europe that produce leading-edge chips.”

The capability needed “cannot be acquired easily” and requires economies of scale, said the report. “The ambition to establish a cutting-edge logic fabrication plant in the EU in a realistic way, therefore, needs the involvement of the leading manufacturers: Intel, TSMC and Samsung.”

Even von der Leyen also admitted that “Europe will build partnerships on chips” with other partners like the United States or Japan.

(Web editor: ZhongWenxing, LiangJun)