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State of play: the EU needs to strengthen its position
In its Communication, the European Commission underlines that “there is no digital without chips”. Europe experiences a situation of crisis with a chip shortage affecting industrial production. In the meantime, the worldwide demand for chips is expected to double by the end of the decade.
International players massively invest in the sector. The US allocates 52 billion dollars for manufacturing and R&D until 2026 (US Chips Act). China will have invested around 150 billion dollars over the past decade by 2025. South Korea will also invest a significant amount of both public and private funds (450 billion dollars until 2030).
The goal for Europe is to promote more balanced interdependences and resilient supply chains without single points of failure. Europe should become a technology leader in innovative downstream markets in the long term.
The European Commission draws a portrait of the current situation of the chip market. Fast-growing sectors include AI, edge computing and the digital transformation at large of verticals (e.g., healthcare). More and more, there is a need for custom design to fit specific industry sectors’ needs. Semiconductor companies increasingly co-design chips with end-user companies. However, Europe needs to improve to catch this trend fully.
The European Commission also mentions new technologies, such as Gate All Around and advanced FDSOI, and new system integration architectures. Those technologies will be taken into account in the EU initiatives.
The European Commission further laments that Europe has no foundries producing below 22nm process nodes. More and more chips below 5nm nodes will be needed in the future.
In its Communication, the European Commission lays down five strategic objectives. These objectives will be achieved through the implementation of the Chips Act Regulation.
The Chips Act Regulation:
-establishes the “Chip for Europe” initiative,
-sets criteria to recognise and support first-of-a-kind Integrated Production Facilities and Open EU Foundries,
-sets up a coordination mechanism between Member States to secure supply.
The European Commission addresses a Recommendation to the Member States. The Recommendation will enable Member States to anticipate measures foreseen in the Regulation until adopted. The Member States are advised to implement this Recommendation through the European Semiconductor Expert Group.
More details on the five strategic objectives are given below.
1) Europe should strengthen its research and technology leadership.
The Commission wants to re-shape the Key Digital Technologies Joint Undertaking. This public-private partnership -funded by Horizon Europe- will become the Chips Joint Undertaking. This Chips Joint Undertaking “will become the lighthouse of the Union’s efforts in semiconductors”. It will support the capital costs and the wide availability of virtual design, testing and piloting resources and share knowledge and skills.
Research efforts will focus on transistor sizes below 2nm, AI, ultra-low-power energy-efficient processors, novel materials, 3D integration of different materials and emerging design solutions (e.g., based on open-source RISC-V computing architecture).
The new Important Project of Common European Interest (IPCEI) will also cover research aspects. It is expected to involve over 100 participants from 20 Member States.
2) Europe should build and reinforce its capacity to innovate in the design, manufacturing and packaging of advanced, energy-efficient and secure chips, and turn them into manufactured products.
Design infrastructure & pilot lines
The research efforts will be fed into pilot lines and the design infrastructure. The “Chips for Europe” initiative -established by the Chips Act Regulation- will bridge the gap from the lab to the fab. The implementation of the new Chips for Europe Initiative will take place mainly through the “Chips Joint Undertaking”. The European Alliance on Processors and Semiconductor technologies will play an advisory role.
Large-scale design infrastructure for integrated semiconductor technologies will be built through a virtual platform available across Europe. Stakeholders will have access to the design infrastructure with clear IP rules. The platform will build on existing and new design libraries. It will be continuously upgraded with innovative design capabilities and requirements, including durability and upgradability of electronic products. The actors that will feed this platform are the Semiconductor Alliance and the Chips Joint Undertaking, including chips producers and users. They will design and develop dedicated processors in areas such as industrial automation, automotive or communications.
The “Chips for Europe” initiative will also create pilot lines. These pilot lines will prototype and scale innovation to bridge the gap from demonstration in a lab to production in a manufacturing facility. Thus, the industry will be able to test, experiment, and validate novel prototype system designs, integrating quantum, AI, neuromorphic technologies, etc. Designers will be able to get immediate feedback to refine and improve their design models before the transfer to manufacturing. In particular, the following new pilot lines will be supported: one on FDSOI (10nm and below), one on leading-edge nodes (below 2nm) and one for 3D heterogeneous systems integration and advanced packaging.
Pilot lines and the design platform will be linked; the pilot lines will enable the design community to test and validate technology options before these become commercially available.
The proposed Regulation establishes a new legal instrument: the European Chips Infrastructure Consortium. This new legal entity can apply for funding under the “Chips for Europe” initiative, particularly for the pilot lines. A Consortium shall gather at least three legal entities from three Member States and shall operate as a public-private consortium for a specific action. This means that organisations have the choice between applying for funding individually or as part of a Consortium.
Certification
Reference certification procedures for specific critical sectors and technologies with potential high impact are necessary. Certification should cover energy efficiency, trust and security. It should also cover the entire value chain up to integration in end products. Certification should be reflected in public procurement and should be promoted in international standardisation activities.
The European Commission will identify priority sectors for certification.
Quantum chips
The “Chips for Europe” initiative will also address the need for quantum chips. It will support innovative design libraries for quantum chips and pilot lines for the integration of quantum circuits. Finally, it will provide testing and experimentation facilities for quantum components produced by the pilot lines.
3) Europe should put in place an adequate framework to increase its production capacity substantially by 2030.
“As the market is expected to double by 2030, quadrupling the production is necessary to reach Europe’s objectives. Further, it is necessary to strengthen the security of supply, notably for critical sectors such as those relevant for public safety. For this, Europe needs to attract investments in production facilities on its territory that can come both from inside and outside the Union, and set up the right conditions and a favourable framework for private investment to take place.”
Thus, Europe must invest in new advanced production facilities to safeguard its security of supply. The European Commission acknowledges that setting up such facilities requires significant investment. Therefore, state-aid is justified on a case-by-case basis. It “may be justified to cover with public resources up to 100%”.
However, for such support to take place, the new production facilities must be “first-of-a-kind” in the EU. This means that the future facilities must go beyond the EU’s state-of-the-art, for instance, in terms of technology node or substrate material. The proposal for a Chips Act Regulation defines “first-of-a-kind”. This definition covers two types of first-of-a-kind facilities: “Open EU Foundries” that devote a significant amount of their manufacturing capacity to produce for other players, and “Integrated Production Facilities” that design and produce components serving their own markets.
Being recognised as an “Open EU Foundry” or “Integrated Production Facility” gives access to several benefits. For instance, these facilities benefit from national fast-tracking granting procedures and have priority access to pilot lines.
Any undertaking or any consortium (applicant) may submit an application to the Commission to recognise the applicant’s planned facility as an Integrated Production Facility or Open EU Foundry. Only projects that would not happen without state aid can receive support.
Supported projects must also demonstrate that they are not subject to extraterritorial application of public service obligations.
4) Europe should address the acute skills shortage, attract new talent and support the emergence of a skilled workforce.
The microelectronic industry is directly responsible for 455 000 high-skilled jobs in Europe in 2018. However, female participation is low, and shortages in skills are important. The Chips for Europe Initiative will support education, training, skilling and reskilling initiatives.
The initiative will also support a network of competence centres located across Europe.
5) Europe should develop an in-depth understanding of global semiconductor supply chains.
The Commission’s Recommendation addresses this item until the Chips Act is adopted.
The EU and Member States will carry out a coordinated risk assessment to identify early warning indicators and anticipate major risks for the supply chain. The EU envisages two types of measures: permanent monitoring and crisis response. The permanent monitoring will involve industry players. It will enable the EU to anticipate possible supply chain disruptions.
When a potential crisis is identified, the Eu will first enter into consultation with international partners.
In case of significant disruptions affecting critical sectors, a crisis response would be triggered. The crisis response toolbox contains a set of measures. These measures include mandatory information gathering, prioritisation of orders for critical sectors and common purchasing schemes. It is similar to what the EU put in place during the vaccine shortage. Additionally, export controls might be put in place.
In addition, the EU will cooperate with like-minded partners, “such as the United States, Japan, South Korea, Singapore, Taiwan and others”. Such cooperation could include information sharing, prior consultation (e.g. prior to export controls), and standardisation activities.
European Semiconductor Board
The monitoring and crisis response will be coordinated through a European Semiconductor Board. This Board will be composed of high-level representatives of the Member States and the Commission.
The Board will also provide advice and assistance to the Chips Joint Undertaking, exchange information on Open EU Foundries and Integrated Production Facilities and identify products in need of certification.
How much will Europe invest?
The EU and Member States will invest 11 billion euros for the Chips for Europe Initiative, including the Chips Joint Undertaking. The Chips for Europe initiative is established for 2021-2027.
The EU budget will support the Chips for Europe Initiative with 3,3 billion euros (1,65 billion euros coming from Horizon Europe and 1,65 billion euros from Digital Europe). Out of these 3,3 billion euros, 2,875 billion euros will be implemented through the Chips Joint Undertaking, 125 million euros through InvestEU and 300 million euros through the European Innovation Council.
As part of the Chips for Europe Initiative, the EU will further invest 2 billion euros in a Chips Fund. This Fund will support start-ups, scale-ups and other companies in the supply chains.
These different actions should result in public and private investments of over 15 billion euros.
On top of this, the European Investment Bank can offer loans to the entire semiconductor ecosystem.
In addition, Member States will also support the semiconductor sector via their recovery plans or regional funds. Member States are already planning to invest in a new Important Project of Common European Interest (IPCEI) to support cross-border projects.
Next steps
Member States are invited to immediately start working on the strategy, as part of the Recommendation. In the meantime, the legislative process for the adoption of the European Chips Act will start.
If you have any questions on this topic, please contact Camille Dornier - Policy Manager: camille.dornier@eurosmart.com
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