Building blocks of the future

In June 2023, the EU made it possible to fund around 100 European projects. But how useful is this approach if the complex and labor-intensive testing, assembly and packaging of the chips continues to take place almost exclusively in low-wage Asian countries? "Without a comprehensive strategy that includes holistic production in our region, the goal remains half-hearted," says Tobias Wölk, Product Manager Automation Technology & Active Components at Reichelt Elektronik. "Europe can only achieve true sovereignty in semiconductor production through a fully Europeanized value chain - from front-end to back-end production. Not only do we need more manufacturing factories, but also a regional settlement of the processing industries. Otherwise, we will continue to be vulnerable to global supply chain disruptions and remain dependent on Asia."

A globalized process

Bringing semiconductor production "back" to Europe is easier said than done. Today, it is a highly globalized process in which even industry-leading chip design companies outsource the production of their chips to external companies. The various production phases themselves are also spread across different regions of the world. Production takes place in two main phases: In front-end production, so-called wafers - thin slices of silicon - are provided with circuits and processed in such a way that chips are ultimately created. Once they have been fully processed, back-end production begins, which involves testing, assembling and packaging the chips. Many large semiconductor manufacturers have decided to outsource the less differentiated and more labour-intensive back-end production to specialized service providers in the Asian market in order to save costs.

This complex manufacturing process makes global semiconductor supply chains particularly fragile. Geopolitical tensions, natural disasters or global crises can cut off a large proportion of European companies from semiconductor supplies. After all, nine out of ten industrial companies in Europe rely on semiconductors. The EU's plan to strengthen European semiconductor production may therefore seem obvious. In mid-2023, the EU passed the so-called Chips Act. The package of measures worth 43 billion euros is intended to attract public and private investment, promote research and innovation and prepare Europe for future supply crises. The EU representatives want to increase Europe's share of the global semiconductor market from the current level of around 10% to 20%. This is no easy undertaking, especially as the USA has already provided USD 52.7 billion in funding in 2022 with its CHIPS and Science Act.

The challenges of relocation

The EU's ambitious plan cannot simply be implemented in the reality of semiconductor production. Simply relocating front-end production will not solve Europe's dependence on semiconductors: back-end production capacities must be increased to the same extent. The global production distribution of the different semiconductor structure widths makes purely European production even more difficult. The smaller the structure widths, the more powerful and efficient the semiconductors and therefore also the end devices. In December 2020, structure widths of ≥0.18 µm accounted for around 49% of European capacity. These semiconductors belong to an older generation and are used in almost all electrical devices today. However, this also means that if Europe wants to cover its own demand from local production, production must be multiplied. There is also a lack of suitable workers to achieve the ambitious targets.

Another significant bottleneck is the dependence on Chinese silicon production. Silicon is largely produced in China. Experts already see that this availability at lower prices represents a competitive advantage for China that should not be underestimated in the production of solar cells. This dependency also makes Europe vulnerable to geopolitical tensions and supply disruptions.

A long way from autonomous semiconductor production

The EU's goal of achieving a 20% global market share in semiconductor production by 2030 is ambitious. However, there are currently neither sufficient funds nor enough skilled workers available to achieve this goal. In order to meet the current challenges, component production must instead be considered holistically.

Europe should diversify its semiconductor supply chains and spread them across several regions in order to avoid dependencies. Close cooperation between industry, government and educational institutions is crucial in order to train and attract the necessary skilled workers. At the same time, bureaucratic hurdles must be removed and investment in research, development and infrastructure massively increased.

Only through a coordinated and integrative approach can Europe realize its vision of a strong and independent semiconductor industry and successfully assert itself in global competition.