56 Business TheEconomistFebruary12th 2022
ChipmakingFabs with benefits
I
n 2013 the eulaunchedanambitious
project. The aim was to double the share
of microchips made in Europe to 20% of
the global total by 2020. Nearly a decade
later it remains stubbornly stuck at 10%. If
that were not bad enough, Europe no lon
ger makes any of the most advanced chips
of the sort that go into data centres or
smartphones (see chart). So, prompted by
shortages of semiconductors and their
growing importance for all sorts of indus
tries, the bloc is having another go.
Judged by numbers alone, the eu’s new
Chips Act, unveiled on February 8th, could
move the needle. It is meant to generate
public and private investment of more
than €43bn ($49bn), about as much as a
similar package working its way through
America’s Congress. More than twothirds
of this money is supposed to take the form
of state subsidies for new leadingedge
chipfabrication plants, or “mega fabs”—
thanks to a more generous interpretation
of eurestrictions on state aid. The rest will
go to other chipmaking infrastructure.
Reality is likely to prove trickier. To un
derstand why, it helps to see the semicon
ductor industry not just as a collection of
huge fabs, of which the most sophisticated
can cost more than $20bn a pop, but as a
global ecosystem of thousands of compa
nies. Even more than in other hightech in
dustries, research and development (r&d)
usually takes years and costs billions. New
chips are designed by specialised firms us
ing complex software made by other com
panies still. And after chips leave a fab,
contract manufacturers assemble, test and
package them (atp, in the lingo).
Seen through this ecosystemic lens, the
eu’s position is both stronger and weaker
than its small share of global chip output
might suggest. Start with the strengths.
The continent maintains a leading posi
tion in semiconductor r&d. One of the in
dustry’s main brain trusts, the Inter
university Microelectronics Centre (better
known as imec), is based in Belgium.
Europe’s firms also produce many of
the machines that make fabs tick. asml, a
Dutch firm with a market value of €230bn,
is the sole global supplier of the litho
graphic equipment without which fabs
cannot etch the most advanced processors.
Only Nvidia, an American chipdesigner,
and Taiwan Semiconductor Manufactur
ing Company (tsmc), the world’s biggest
contract manufacturer of chips, are worthmore.Anarrayofsmaller European outfits
enjoy dominant positions in the complex
chipmaking supply chain. Carl Zeiss smt
makes lenses for asml’s lithography ma
chines (and is coowned by it). Siltronic
manufactures silicon wafers onto which
chips are etched. Aixtron manufactures
specialised gear to deposit layers of chem
icals onto those wafers to make circuits.
Once you widen the aperture to the
whole ecosystem, Europe’s biggest chip
makers, Infineon, nxpand stMicroelec
tronics, also appear less benighted. Yes,
half of the continent’s capacity is for chips
with structures (“nodes”) measuring 180
nanometres (billionths of a metre) or
more, generations behind the technologi
cal cutting edge, dominated by tsmcand
Samsung of South Korea, whose transis
tors come in at a few nanometres. But
those nanoelectronics are most useful for
consumer devices, the bulk of which are
assembled in Asia. By contrast, the larger
European nodes are sufficient for the con
tinent’s many industrial firms that require
specialised silicon for things such as cars,
machine tools and sensors. “European
chipmakers focus on their customer base,”
explains JanPeter Kleinhans of snv, a Ger
man thinktank.
If the Chips Act is a guide, European
policymakers worry that these genuine
strengths are not enough to offset the eu’s
weaknesses. Besides lacking cuttingedge
fabs, Europe is short of companies with the
knowhow to design the smallest chips,such as Nvidia. It is similarly behind in
atp, where most capacity is in China and
Taiwan. Once approved by member states
and the European Parliament, the eulaw is
meant to help Europe catch up. Besides the
€30bn or so for megafabs, it has pencilled
in €11bn for things like a virtual chipde
sign platform open to all comers and other
infrastructure, including pilot production
lines for leadingedge chips. But half of
that is to come from member states and the
private sector. The eu’s contribution of less
than €6bn will, as with the bloc’s other pro
grammes, come with many bureaucratic
strings attached.
A bigger problem is the act’s focus on
luring giant chipmakers to build mega
fabs. tsmcand Intel, its American rival,
have signalled they would consider Europe
only if governments shoulder a big part of
the costs (40% in Intel’s case). To enable
such deals, the first of which is expected in
weeks, the European Commissionwants to
relax stateaid rules to let member states
subsidise such fabs “up to 100% of a proven
funding gap” if they are “firstofakind” or
would “otherwise not exist in Europe”.
If such criteria were meant to avert a
subsidy race, they look copious and fuzzy
enough for countries to try to game them.
Worse, the resulting fabs may end up un
derused. By the time they are ready in a few
years, the chip shortage may have turned
into a glut. And if the eu’s efforts to boost
Europe’s chipdesign firms fail, European
fabs would have to rely on foreign chipde
signers for custom. Why, asks Mr Klein
hans, would American firms choose to
have their chips manufactured in Europe
rather than in Asia or at home?
Thierry Breton, the eucommissioner in
charge of industrial policy, envisions a
Europe of megafabs that not only serve
the continent’s own demand, but world
markets. Europe may be better off prop
ping up its chip ecosystem by investing in
things like basic research. Mr Breton
doesn’t need to pick Europe’s chipmaking
winners. As the eu’s semiconductorstars
show, the market can do that just fine.nB ERLIN
In the global semiconductor arms race, Europe makes its moveMore chips, please, we’re European
Leading-edge semiconductor
manufacturing capacity, by location, %Source:Kearney *Estimate100806040200
2000 05 10 15 20*Rest of worldJapanS. KoreaUSTaiwan
EuropeHoping for a rosy outlook