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Europe produced a quarter of the world’s semiconductors as recently as 1990 but this has since shrivelled to 8pc. Its share of the most advanced chips – these days below 10 nano-metres – has fallen to near zero.

The EU is spending €43bn in hopes of reconquering 20pc of the world market by the end of this decade, and at the same time achieving security of supply. Since the world market for chips is expected to double by then, the EU must quadruple its output.

Chip manufacturing is capital intensive and fairly low margin – once that capital is accounted for. Why is this an industry that the EU, or any other advanced economy, would want to dominate?

Chip design is one of those oohsqueallikeapiggieatthemargins businesses that the EU, UK and US and so on is already extremely good at. Making the machines that make chips equally so. So why are these people so insistent at trying to break out of a high margin business into a low margin one?

The answer, sadly, is that yes, politicians are that stupid.

11 thoughts on “But why?”

  1. Yarp. Another thing is that the semiconductor business uses a lot of energy.

    Europe has allowed itself to be bafflegabbed into sabotaging its own energy base, and then the Americans bombed their escape route to cheap Russian gas.

    How is Europe going to compete in semiconductors when it costs 2-3 times as much as the global average for electricity?

    Simple: it’s not going to compete. Europe doesn’t need to worry about the chip industry or any other industry, they’ve belatedly realised the Americans and the Chinese are coming to eat their lunch:

    “[…] if you go to the US you’ll be subsidised and you’ll get much cheaper energy than in Europe. It’s a subsidy race,” said Jozef Sikela, the Czech industry and trade minister.

    They’ll never be able to out-subsidise the USA, and they’re fanatically opposed to doing the things that are necessary to be competitive on energy. I’m sure they’re still capable of producing very impressive and voluminous industrial strategies tho. So expect a lot of speeches.

    The price of stupidity is poverty. Buh-bye, Europe.

  2. Security of supply is the only valid reason. If Xi goes batshit and invades Taiwan, we’re gonna have to build some factories somewhere safe pretty sharpish.

    We face a similar situation now, with pharmaceuticals. There is an Europe wide shortage of many drugs ( I have had two incomplete prescriptions so far this month ). At what point is there value in building factories to plug the shortages, hang the cost to the end user ?

    ( British chemicals in 1914 were almost all German made, including TNT and the govt had to plug that gap with imports from Sweden or USA, until new factories could be built).

  3. Just a thought, if Europe had 25% of the market in 1990 but now has only 8%, might that be because over the last 30 years the market size has grown exponentially with more Countries producing them, so Europe’s output could have increased despite a decline in market share?

  4. @Ottokring

    ‘ There is an Europe wide shortage of many drugs ( I have had two incomplete prescriptions so far this month ). At what point is there value in building factories to plug the shortages, hang the cost to the end user ?’

    There is no shortage of factories in Europe, but there may be a shortage of raw materials due to disruption caused by Govt response to the Fakedemic, staffing problems, plus short supply of energy and its increased cost.

    Many of the components for pharmaceuticals are manufactured or synthesised in plants in the chemical industry not the Pharma companies themselves. Shortages there may be causing manufacture delays in Pharma factories.

  5. There’s plenty of semiconductors produced in Europe, actually. Up to the bleeding edge of cpability, even.

    Thing is, that production doesn’t show up in global percentages, because they aren’t off-the-shelf components, but specialised designs peeps don’t want to hand off to Asia/US for manufacturing for Bloody Obvious Reasons.
    Against the sheer bulk of standard chips the volume they’re made at are a mere scuff on a blip in the numbers involved. Of course they won’t show up.

    It’s not about “dominating a market” of bulk goods.
    It’s about the ability to produce those lovely Black Boxes that nosy neighbours can’t easily pull the designs of out of the archives to figure out how you’ve done a particular trick. Make them do the legwork, instead of “borrowing” your ideas and patents.

    And afaik Europe can do that with the best of them.
    For instance, lovely “little” fab in Delft. Does the prototyping/testing and production of controller chips for ASML ( y’know, that dutch manufacturer of fabbing machines of some importance..).
    Also makes stuff for Delft University, space-hardened stuff for satellite builders, ESA, and CERN.
    Wouldn’t surprise me if they also make military stuff, but simply don’t publicise the fact, as one does…

    That’s where independence lies. Something a lot more important than shovelling power converters, or GSM modules, or RAM blocks in bulk and “dominating” a low-margin market that way.

  6. There is semiconductor company that does the first half of the wafer processing in Germany and then sends the wafers to France to complete the process. Something, something Noble Workshare.

    Having to do something in each country providing the subsidies really hurts efficiency.

  7. John B

    It isnt a shortage of factories, it is that they are producing the wrong stuff. A lot of the missing drugs are ( again) low margin or generic and are made in India or China, where also the raw materials are also gleaned. Antibiotics appear to be the most hit, although one if my missing drugs is a blood pressure tablet – I suspect because they are sold alingside Smarties.

    I have always ben puzzled by the aparent neglect that I read about for antibiotics in the industry.

  8. Antibiotics have a problem. If we have a new one then we don’t want to use it. Because using it widely would mean resistance is built up. So, we do want folk to spend a $billion developing one, but we don’t want them to be able to sell it in volume. Tricky problem……

  9. MG: that’s the EU way on very many projects. This latest money, if it ever appears, will have to be divvied up in a similar way.

  10. Some bloke on't t'internet

    I see Ottokring and Grikath have beat me to it and highlighted that there is more to the decision that “who can do it the cheapest”. Without saying too much, in my industry there are concerns about a number of supply chain issues – not least, being able to buy “stuff we don’t want to talk about” from countries we’re not at war (in some way or another) with.

  11. There’s merit in having a relatively reliable supply chain for chips – including design, design toolkits, fabrication, packaging, test etc. Plus equivalent stuff for the products the chips are used in.

    Globally, the physical side of this is currently done almost exclusively in the East. Which is currently considerable as under threat by China. But even if it wasn’t, sticking all your eggs in one basket is… tempting fate.

    So having multiple geographic sites where this can be done seems a reasonably good idea, although doing that generally puts the costs up a bit.

    So far, so good.

    But what Europe should be doing is seeking to make it attractive for established manufacturers (etc) to build in the EU; NOT trying to boot all that stuff simply for “digital sovereignty”. That’d be a few hundred billion of taxpayer money down the tubes.

    So of course….

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