How the European Commission is responding to chip crisis

The global supply of semiconductors is still constrained, and this is having a direct impact on European manufacturers

The global supply of semiconductors has impacted the plans of many European manufacturers that rely on chips sourced in the Far East.

Research from the European Central Bank (ECB), published in April 2021, found severe bottlenecks in some of the key manufacturing industries that rely heavily on semiconductors. For instance, the motor vehicle industry in Europe has been significantly affected by the chip shortage.

According to the ECB, in the first quarter of 2021, global production of passenger vehicles fell by almost 1.3 million, corresponding to a 11.3% decline against the last quarter of 2020 and a 2.8% decrease on the 2019 level of production.

Geopolitics has also led to a situation where Europe risks falling behind the technology innovation curve as China ramps up investment in high tech following US sanctions.

Globally,  analyst Gartner, recently reported that the semiconductor shortage and the Covid-19 pandemic disrupted global original equipment manufacturers’ (OEMs) production in 2021. But the top 10 OEMs increased their chip spending by 25.2%, accounting for 42.1% of the total market.

“Semiconductor vendors shipped more chips in 2021, but the OEMs’ demand was far stronger than the vendors’ production capacity,” said Masatsune Yamaji, research director at Gartner. 

Looking at the main buyers of semiconductors, Gartner’s figures show that Apple and Samsung are by far the biggest purchasers of semiconductors, followed by Lenovo. Rounding off the top five are the Chinese conglomerate BBK Electronics and Dell. Overall, these five companies account for more than 32% of semiconductor purchases.

Looking the ramifications of the US sanctions against China, Daniel Clarke, analyst on GlobalData’s thematic research team, said: “US chip sanctions will impede China in the short term, but these sanctions have led China to invest over $1.4tn into advanced tech, including efforts to create a domestic semiconductor champion of their own. As a result, US sanctions will have had the unintended consequence of allowing China to become a global and self-sufficient semiconductor player in the long term.

“China’s lead in many advanced tech sectors is glaring, and US and European policy-makers are starting to wake up to the implications of being behind on core technologies.”

Gartner noted that the semiconductor shortage prevented manufacturers from increasing production. This impacted manufacturing of electric vehicles and electronic equipment, including smartphones and video game consoles. However, the chip shortage significantly increased selling prices, which meant OEMs spent much more on semiconductor procurement in 2021 than in previous years.

European Chips Act

Under the guise of digital sovereignty, the European Commission (EC) has proposed a European Chips Act to encourage the development of a thriving semiconductor sector from research to production and a resilient supply chain. The EC aims to mobilise more than €43bn of public and private investments and set measures to prevent, prepare, anticipate and swiftly respond to any future supply chain disruption.

This builds on the EC’s July 2021 Industrial Alliance on Processors and Semiconductors, which laid out plans to identify current gaps in the production of microchips and the technology developments needed for companies and organisations to thrive, no matter their size. 

The European Chips Act is the EC’s response to the semiconductor crisis. Commission president Ursula von der Leyen said: “The European Chips Act will be 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. And in the mid-term, it will help make Europe an industrial leader in this strategic branch.

“With the European Chips Act, we are putting out the investments and the strategy. But the key to our success lies in Europe’s innovators, our world-class researchers, in the people who have made our continent prosper through the decades.”

The proposal has three core principle. First is an initiative dubbed Chips for Europe to pool resources from the European Union (EU), member states and third countries associated with the existing EU programmes, as well as the private sector. The EC said it plans to make  €11bn in funding available to strengthen existing research, development and innovation.

The second part of the European Chips Act covers investments and enhanced production capacities to secure semiconductor supply. The EC has also set up a Chips Fund to facilitate access to finance for startups to help them mature their innovations and attract investors. The EC said the fund will include a dedicated semiconductor equity investment facility under InvestEU to support scaleups and SMEs to ease their market expansion.

The final part of the Act covers what the EC describes as a “coordination mechanism” between member states and the Commission for monitoring the supply of semiconductors, estimating demand and anticipating shortages. 

Intel has supported the EU proposal for a Chips Act and the ambition to develop a more geographically diversified, sustainable and resilient semiconductor supply chain. It said in a statement: “The proposal is a catalyst for future EU-wide critical R&D and manufacturing investments from Intel and others in the semiconductor industry.”

Read more news about chips

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