The (global) supply chain of Chips, Chips in the European supply chain

Electronic circuitry has always be considered strategic. 40 years ago it was the dominant position of Japan that seemed to represent a threat to vital national security interests of the US. But, despite its perceived strategic importance, the global semiconductor market is rather small, only about 0.5% of world GDP – and is not a growth industry as this percentage has not increased over the last 20 years. There are many different types of chips that fulfill very different functions (memory, logic and discrete). It is the most advanced logic chips with the smallest nodes that have captured the attention of policy makers. However, this type is little needed in Europe. The security of supply argument for subsidizing fabs to produce these chips is thus weak. This contribution first analyses the key factors driving changes in the supply chain for chips over the last decades, which were mainly the migration of fabs to capital abundant countries in Asia and the increasing importance of software and design, that now account for over one half of the value of a finished chip. The global division of labor that has emerged is that the software comes from the US, the fabs are in Asia and Europe has a strong position in the machines to produce the most advanced (logic) chips. Semiconductors is one of the few industries in which China plays only a secondary role. Strengthening the EU presence in the chip ‘ecosystem’ requires addressing the fundamental weakness in support for software development and R&D. Support for the precision manufacturing needed for the advanced chip manufacturing machines would also be useful but would require an order of magnitude less than the tenths of billions of euro for fabs foreseen in the Chips Act.