It is crucial for Europe’s prosperity that it quickly becomes less dependent on chips from Asia and America. So the EU will come up with an attack plan of 11 billion euros on Thursday. But is that ambitious enough?
In 1987, Taiwan asked Philips for help in establishing a new chip factory, TSMC. The Eindhoven company once had an interest of 38 percent, but sold its last shares in 2008. Now Philips is struggling with its apnea devices, while TSMC has become the world’s leading chip producer, indispensable for the development of powerful computers, artificial intelligence or the self-driving car.
‘It’s a terrible story,’ says Bram Nauta, professor of chip design at the University of Twente. ‘If Philips had kept TSMC, we would have had that knowledge by now. Then there would have been people in Eindhoven who had mastered the technology and we could also set up such a factory here. Then we wouldn’t have had a geopolitical chip problem.’
Chips are the lifeblood of the modern economy, but Europe’s market share in global production of these semiconductors has fallen below 10 percent. Europe is painfully aware of its vulnerability. If the supply lines are cut, be it through war, pandemic or geopolitical tensions, Europe turns out to have very little to make itself.
European Chips Act
On Thursday, the European ministers of Economic Affairs are likely to adopt the European Chips Act, an attempt to catch up with the European backlog in the field of chips. The European Union will stimulate research and build new chip factories. In 2030, Europe’s share of the chip market must double to 20 percent. The EU is investing around 11 billion euros, an amount that should rise to 43 billion through private investment.
That is far too little, says Nauta, and a market share of 20 percent in 2030 is totally unattainable. But it is a start: Europe is aware of its dependence on Asia and is going back to industrial policy. ‘In the 1980s, a company like Philips made its own chips,’ says Nauta. ‘At that time, it still took a lot of people. In Asia you had cheap and disciplined workers. Companies thought: why should we still make our own chips if they can do it better and cheaper in Taiwan? It was naivety, short-term market thinking,’ says Nauta.
Taiwan and South Korea
Geopolitical considerations played no role at the time. China was still a country of poor peasants. It was the period in which the American philosopher and political scientist Francis Fukuyama The end of history argued that there was no longer an alternative to liberal democracy. Sooner or later everyone would become like us.
Asia benefited. Asian companies got better and better at making chips. A continuous process of scaling left only three major manufacturers of advanced chips: TSMC in Taiwan, Samsung in South Korea and, at some distance, Intel in the United States. Chips are still being made in Europe, for example by the Dutch NXP, but these are mainly simple chips that are processed in cars or washing machines.
fragile
In itself, the chip sector is nicely balanced, says Nauta. Chips are designed in America, by companies such as Apple, Qualcomm and Broadcom, and made in Asia with machines produced in Europe, with Eindhoven-based ASML as the undisputed champion.
‘When we all acted openly, in freedom and joy, it didn’t matter that we didn’t make anything ourselves,’ says Maaike Okano-Heijmans, researcher at the Clingendael Institute. Corona and the war in Ukraine have shown how fragile European prosperity is when supplies stop. In an increasingly raw world, the chance of such disruptions only increases. What happens if China invades Taiwan? Will TSMC’s chips still come to Europe? And can they still be trusted or are they full of spyware?
In the United States, the tendency towards protectionism is on the rise, including under President Joe Biden. Moreover, America demands support from Europe in its ever-growing rivalry with China. For example, ASML is being put under pressure to stop supplying advanced machines to China. ‘Europe wants to determine its own position in this conflict, but it is difficult to resist American pressure if you are so dependent on the United States for your security, as is now apparent again in Ukraine,’ says Okano-Heijmans. For example, technological autonomy is related to military autonomy.
Democracy versus autocracy
The battle between China and the United States is a battle between two systems, democracy against autocracy. ‘In that battle you want to achieve technological superiority. The Chinese government offers its companies much more support. Then you can say: ‘Our system is so beautiful’, but then our companies are at a disadvantage. We are now trying to correct that’, says Okano-Heijmans.
Since 2015, China has invested an estimated 150 billion euros in the development of its chip sector, albeit with moderate success. The United States now allocates $ 52 billion in its Chips Act to subsidize its chip industry. Meanwhile, Asia is defending its position: South Korea is to become a ‘chip superpower’ thanks to a package of 250 billion euros in public and private investment.
This creates a global subsidy race. ‘We always said: we want the best and cheapest chips. Now we say: we should be able to make our own chips, even if they are more expensive and maybe worse,’ says Nauta.
Protectionism is lurking, because the subsidized European and American chip industry must be protected against the superior Asians. The world threatens to fall apart into blocks. Nauta: ‘Will we benefit from that? I do not think so. But Europe must prepare for it. If we are the naivest boy in the class, the Chinese and Americans will soon be able to do everything, and we will do nothing.’
Obstacles
It is difficult to catch up with Asia, says Nauta. ‘Making chips can be compared to cooking,’ says Nauta. ‘You can buy the best oven, but that doesn’t make fantastic food. The recipes are secret and consist of thousands of steps. Making one chip takes eight weeks. If you heat it up to 300 degrees it goes right, if you heat it up to 310 degrees it goes wrong. And you only find out after eight weeks. That’s why it’s so hard, especially in the beginning.’
You need people with knowledge to make chips, and there are not enough of them in Europe. ‘A study of electrical engineering takes five years and then you need another two years of work experience to become really good,’ says Nauta. “Seven years in all. For that reason alone, a market share of 20 percent in 2030 is unattainable.’ Moreover, Europe has hardly any industry that processes advanced chips. ‘You can set up such a factory, but if you then export all your chips to America, it won’t help you much,’ says Nauta.
Cuddle professions
The hurdles are enormous, but the mental turnaround has been made. Europe wants to pursue an industrial policy again. The Netherlands has always been against this, partly out of fear that large companies from large countries in particular would benefit from generous subsidies. That fear is not entirely unjustified, but now the Netherlands also realizes that Europe will have to participate in a global technological race.
‘The outside world forces us to do it,’ says Okano-Heijmans. ‘We have become less naive in recent years. We protect ourselves better, for example by screening investments from China for safety. But only now are we starting to work on our own competitiveness. You must not only protect yourself, but also make yourself bigger.’
A story about chips quickly becomes a moral tale, about industrious Asians and naive Europeans, about commercial Americans who have neglected the production of chips in favor of the big money of the software-driven companies like Facebook, Google and Amazon. ‘We have too many hugging and talking professions,’ says Nauta. ‘We have a coffee shop every hundred metres. Very nice, but what good is it?’ A nation of nail polishers, dog groomers, lifestyle coaches and baristas needs more techies, he says, from solar panel fitters to chip designers.
Return to the front
But the development of technology cannot be explained by cultural stereotypes. In the 1990s, Nauta worked at Philips, where they had a good laugh about an emerging company from Korea. “Samsung, that couldn’t be anything, plastic junk,” he recalls. Then the Koreans wiped out their Japanese and European competitors.
Therefore, if it sets a strategy and invests heavily, Europe can return to the forefront of technology. Nauta: ‘We have enough smart people. ASML’s machines are the most complex machines mankind has ever made. And they were invented by the Dutch.’