The Big Six and Europe’s Place in the Global Value Chain of Semiconductor Production

2021 was a challenging year for semiconductor manufacturers. Especially in the automotive industry, as car manufacturers faced a severe shortage of semiconductor chips critical to the functioning of modern cars. This resulted in leaving cars stranded at factories waiting for their chips to be supplied. The chip shortage in 2021 was a wake-up call for the automotive industry, highlighting the need for a more resilient supply chain. Governments around the world are now taking steps to address this issue by investing in domestic semiconductor manufacturing, which is expected to reduce the dependence on foreign suppliers and ensure a steady supply of chips in the future.

2022 was a crucial year for the semiconductor industry. The global semiconductor supply chain includes six big key players: China, Japan, Taiwan, the USA, South Korea, and the EU. The Big Six are shaping their policies, pouring investment in R&D to boost the manufacturing of semiconductors, which takes the central role in the sectors guiding the ongoing digital revolution: autonomous vehicles, artificial intelligence, quantum computing, industry 4.0, 5G/6G communications, and the internet of things.

The EU takes a significant place in the global value chain of semiconductor manufacturing. Unfortunately, over the past 20 years, we saw a great decline in Europe’s share in global chip manufacturing. According to consulting firm Kearney, it has dropped from 25% in 2000 to 8% today. An even more drastic decline has occurred in advanced semiconductor technology, with Europe’s market share falling from 19% in 2000 to zero today. As a result, European governments, the EU including, are taking ambitious investment plans to support their countries’ semiconductor production. The graphic below shows the main policies taken by the world’s top six to support their semiconductor production from the period of 2015 until 2022.

Semiconductor policies in the world’s top six

(Source: Optima Design Automation)

Due to the huge demand for semiconductors, Europe is making a significant push in investment to increase its competitiveness in the global market. The EU’s push into semiconductors is also driven by the increasing competition from other regions, particularly the United States, China, Japan, Taiwan, and South Korea.

In February 2022 the European Chips Act was announced by the EU Commission President Ursula von der Leyen. According to it, €15 billion was added to the existing €30 billion in public investments to create new STEM-focused programs, attract new talent to Europe, and build new infrastructure. Europe has the ambition to reach at least 20% of the world’s production  of cutting-edge and sustainable semiconductors by 2030, building on its strengths in research and equipment manufacturing, analog chip design and low-power technology.

Europe’s strategy to retain and strengthen its semiconductor industry comes at a time when other nations and regions are also upping their game. The proposed CHIPS for America Act seeks to re-shore semiconductor production. China’s updated Five-Year Plan (2021 – 2025) is focused on strengthening China’s economic foundations through the support of technology and innovation, and the semiconductor industry is a key focus of this effort. South Korea is also investing in supply chains and technological R&D. The investments and policy actions of these and other countries reveal a growing recognition of the strategic importance of the semiconductor industry in shaping the economic growth, competitiveness, and security of nations and regions.

European semiconductor industry in an economic context

The EU interest in semiconductors has increased dramatically in recent years given their role in the functioning of the modern economy. Big companies boosted from 438 billion EUR in 2005 to over 2.5 trillion EUR in 2021 with an average yearly increase of over 30% in the last five years. Moreover, in 2021 there was a record upsurge of +53.7% compared to 2020. (Source: Thomson Reuters, Data-stream)

It is important to point out semiconductor’s distribution in the European economic context. The European market is known for its strength in the automotive (37%) and industrial (25%) sectors (figure below). Consequently, interesting growth potentials may arise for the EU semiconductor market. Among Europe’s strengths, it has the three largest IDMs (Integrated Device Manufacturers) or fabs – STMicroelectronics, Infineon and NXP; dynamic start-ups and the world’s leading research centers in nanoelectronics – CEA-Leti, Fraunhofer, IMEC and C.N.R.S. Yet, despite all the mentioned above strengths, Europe still lacks world-leading fabless firms.

Segment distribution in the region (2019)

(Source: ZVEI: Die Elektroindustrie, 2021)

Political framework of semiconductors in Europe

Due to their strategic importance, semiconductors gained increased political attention worldwide in the past few years. As a result, governments and policymakers focus on the importance of this industry, recognizing its critical role in technological advancement and economic growth.

About 75% of the world semiconductor manufacturing capacity is concentrated in East Asia and China (Taiwanese TSMC makes 53% of the global market share, South Korea’s Samsung – 16,3%, and Taiwanese UMC – 5,7%) . Asia is a rich supplier of key materials such as silicon wafers, photoresist and other chemicals, which makes countries like Taiwan, South Korea and China the leaders in semiconductor manufacturing. Therefore, the world is dependent on this region. According to Boston Consulting Group, it would take more than 30 years and € 350 billion in investment to replace Taiwanese foundries with other foundries. Consequently, governments are more concerned about the dependence on foreign sources for semiconductors, as this dependence can create risks for national security and economic competitiveness.

In conclusion, the increased political attention on semiconductors reflects their growing importance in the global economy and technology landscape. Governments and policymakers are focusing on the need to ensure stable and secure supplies, as well as to support the development of new technologies. According to a study by SIA and the Boston Consulting Group, ‘global demand for semiconductor manufacturing capacity is projected to increase by 56% by 2030’. As this long-term trend continues in the years ahead and demand for chips rises, semiconductor companies need to invest in more research, design, and manufacturing. The question is not whether more chip manufacturing facilities, or fabs, will be built, but rather where they will be built. And this is where Europe has a big potential.

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Anastasiya Sasnakevich

Anastasiya Sasnakevich is a digital marketing specialist with over 5 years’ of international experience. Having worked in different fields, Anastasiya found herself in automotive semiconductor industry where she has been working for almost 2 years. She holds Master Degree in International Business and Economics from BFSU, Beijing, and an MBA in Digital Marketing and Business from EFAP, Paris.