12 October 2023 · 3 min read
Author: Matilde Castleberry
Europe has announced a remarkable comeback in the world of semiconductors. In this article we’ll unveil the current state of EU’s production going through past hurdles and future prospects. Get ready to explore Europe's resurgence in microelectronics!
In our previous article we have been uncovering the faces behind our circuits making our way through the global giants of semiconductors. We analysed the reasons for which many fabless around the world struggle to transition into Integrated Device Manufacturer (IDMs), which leads us to today’s location: Europe. When it comes to the shares of the global microchip market, Europe is less engaging compared to other regions of the world, but has it always been like that? What is today’s scenario and how will tomorrow unfold?
Peaking into the past to have a glimpse of the future
In the 1990s, the European Union stood as a leader on the global stage of semiconductors accounting for more than 20% of the world's production. However, as the new millennium unfolded, Europe's semiconductor journey took a steady downward trajectory. Two main factors contributed to this transformation, the general decline in consumption and the emergence of the foundry/fabless model with the consequent growing competitiveness of regions with cheaper manufacturing costs.
Another key determinant of today’s situation lies in the nature itself of the European market. The heart of our manufacturing prowess lies in the automotive industry, which in 2021 accounted for roughly 7% of the EU’s GDP. For this specific industry chips don’t necessarily need to be as tiny as in other sectors and, since the production of cars was leading the market’s demand, we never felt the need to invest in them. Today however, the semiconductor race is as much about quantity as it is about size. From the 350nm chips in 2000 to the 2nm ones in 2022, the microelectronic industry is now nanoelectronic.
Europe’s role in the global arena and its internal actors
Europe’s share in global fabrication capacity of semiconductors is now below 10%. In 2020, 1 trillion chips were produced worldwide and Europe emerged as a net importer. In 2015 and 2010, the EU's trade deficit for semiconductors was almost € 20 billion. (JRC Technical Report). The most exported products were machines for the production of semiconductors and China accounted for more than 50% of imports in the field. In the value chain however, Europe holds a strong position in some segments such as the provision of core intellectual property locks and fabrication tools.
With no surprise Germany is by far the most integrated member state in the value chain, accounting for almost a third of the total Global Value Chain (GVC) integration in the EU, the Netherlands and Italy follow with 9% while France accounts for 8%. Germany is also the leading European country by number of semiconductor companies located on the territory. The Netherlands however, with far fewer industries, is leading in terms of average and median sales of companies, followed by England and France.
Given Europe’s position in the GVCs of semiconductors and their recent disruption - of which we spoke in our first article - the region is experiencing a serious chip shortage. This event has already cast a shadow over the Eurozone's economy, resulting in a 0.1 percent GDP drop for 2021, equating to the loss of approximately € 11 billion in value creation (Europe’s urgent need to invest in a leading-edge semiconductor ecosystem). The automotive industry, which remains one of the continent's economic pillars, fell short by a staggering 4 million cars in meeting the soaring demand during the first half of 2021. Analysts predict that the global impact on automotive Original Equipment Manufacturers (OEMs) will translate into a revenue shortfall exceeding € 50 billion for the year 2021 alone.
Many believe that the shortage will last well into 2024, therefore Europe is taking bold steps towards securing its tech future. With strong infrastructure, talent, stability and a strong position in certain parts of the semiconductor value chain, Europe has unleashed €43 billion through the 'European Chips Act' to meet the ambitious goal of reaching 20% of global market share by 2030.
In our next article, we'll unveil how this investment is transforming the semiconductor industry and securing Europe's global position. Don't miss out on the details of this game-changing legislation.