EU's semiconductor plan "doomed to fail", says think tank

The European Commission's plan to make the most powerful computer chips runs the risk of wasting billions of euros, a report from German think tank Stiftung Neue Verantwortung (SNV) has warned, urging policymakers to instead focus on rebuilding the entire European chip design sector.

The report's author Jan-Peter Kleinhans said that the Commission's new goal of doubling its global share of semiconductors by 2030 was "doomed to fail" because the bloc currently lacks a "meaningful" market that an advanced chip foundry could sell into.

"For an EU foundry there is simply no business case at the moment in Europe, mainly for the lack of customers," said Kleinhans, an analyst at the Berlin-based SNV.

Last month, the Commission launched the Digital Compass, a ten-year plan aimed at producing 20% of the world's semiconductors by 2030 and constructing a fabrication plant - or fab - to produce superfast 2-nanometre chips.

Read more: EU Sets 2030 Target For Semiconductors And Quantum Technology

The Commission's drive for a European semiconductor sector has gained in urgency in light of the continued supply chain disruptions caused by the sharp recovery in demand for products ranging from electric vehicles to smartphones, after a slump at the start of the first wave of the coronavirus one year ago.

The problem with the EU strategy, Kleinhans told Reuters in an interview, is that, unlike Asia or the US, Europe lacks a meaningful standing chip design industry that justified the cost of building a mega-fab.

"In terms of volume it's simply not enough to fill a fab," he said. "That would mean an EU foundry would need to attract foreign customers - this is extremely unlikely."

Industry leaders Samsung and TSMC have already planned investments in the US to serve chip design companies like Nvidia or Qualcomm which rely on contract chip manufacturers to produce their products.

Plans by Intel to launch its own contract manufacturing operation, beginning in the US, would add capacity and raise the question about the financial viability of an expansion of production in Europe, Kleinhans said.

Instead, the bloc should shift focus to reviving its vestigial chip design sector, he added.

Of its two most recently listed  "fabless" chip manufacturers, one - Dialog - has agreed to an acquisition deal by Japan's Renesas.

Read more: Apple chooses Germany for €1bn semiconductor design factory

Last month's announcement by Apple that it was to invest €1 billion into a new semiconductor manufacturing facility in Munich, Germany, Kleinhans said, is a clear indicator of the direction in which the EU should be focusing its efforts.

"Apple has single-handedly done more for European-based chip design than the Commission in the past 10 years," he said.

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