Europe Doesn’t Need a $30 Billion
White Elephant
The continent desperately wants to become self-reliant when
it comes to tech. But it’s focusing on the wrong things.
By Alex Webb
February 12, 2021, 9:11 AM GMT
In parts of southeast Asia, white elephants were long
considered a symbol of prosperity because they were expensive to maintain and
served little practical purpose. It’s an apt metaphor for Europe’s latest plan
to catch up with the U.S. and Asia in technology.
The European Union is
considering the construction of its own advanced semiconductor manufacturing
facility, Bloomberg News and others reported on Thursday. The ambition to
make next-generation silicon chips is admirable, but it’s also wildly
misplaced. Yes, these underpin most of today’s cutting edge technologies —
smartphones, virtual reality goggles, data centers and plenty more besides. But
there’s simply not enough demand for these particular chips in Europe, and
there isn’t likely to be any time soon.
In chipmaking, three countries dominate the market: the U.S., Taiwan and South Korea. Because their domination extends back
decades, an ecosystem of suppliers, customers and skilled workers has developed
around them. It means the big players, particularly Taiwan Semiconductor
Manufacturing Co. and South Korea’s Samsung Electronics Co., can invest in new
production facilities with the confidence that they will not only be able to
source the components and employees they need, but also that customers will be
waiting on their doorstep.
European chipmakers such as Infineon Technologies AG and NXP
Semiconductors NV also rely on them. But events of the past two years have
heightened fears about Europe’s technological sovereignty and the idea that it
is too dependent on imports of critical technology. First the U.S.-China trade
war highlighted the precariousness of the global supply chain. European
companies like Nokia Oyj and Ericsson AB, for instance, had to develop
contingency plans to shift production away from their Asian manufacturing
facilities.
Then came the virus. Many of Europe’s carmakers rely on Infineon and NXP — chipmakers that do
have their own factories (called “fabs” in the lingo) but also outsource some
fabrication to TSMC. Due to the pandemic’s capacity constraints, the Taiwanese
firm, which also supplies Apple Inc., got so busy churning out widgets for
iPhones that it couldn’t produce chips for the European auto companies trying
to ramp up production.
Those sort of perturbations seem to have sent a chill down
lawmakers’ spines, not least that of Thierry Breton, the European industry
commissioner. As we head toward a world where everything is connected by 5G
networks, reliable access to chips
seems even more crucial. Breton’s response is to seek the construction of a
so-called foundry, a semiconductor facility capable of making different chips
for different customers. The bloc wants a foundry capable of supplying the newest tech: semiconductors with
circuit patterns less than 10 nanometers wide.
The problem with this plan is that European factories don’t make the devices that need such chips.
There is some demand, of course, but it can usually be supplied from outside
the region. Europe just doesn’t have
much of an electronics industry anymore. Many of the products it does make
— industrial machinery,
cars, telecoms equipment — are pretty big, so in a rudimentary sense, it
matters less whether chips rely on 10-nanometer or 25-nanometer technology,
because space is less precious than on a smartphone.
What’s more, foundries are expensive to build — between $20 billion and $30 billion a pop. And
they need additional investments of
billions of dollars every two to three years to keep pace with
technological innovation. To get a return on that investment, the production lines need to run 24 hours a
day, seven days a week, according to Jean-Christophe Eloy, a semiconductor
consultant and the chief executive officer of Yole Developpement. Europe is a more expensive location to
operate too.
Without sizable demand, it makes little business sense to
invest in a European foundry. “It’s like building a cathedral in the desert,”
Eloy told me.
The EU is in discussions with both Samsung and TSMC about
the foundry project, Bloomberg News reported. But it’s hard to imagine either
company proceeding without massive EU subsidies. And such funds would be better
spent elsewhere. Fostering an electronics industry that might create subsequent
demand for a foundry would be a good place to start. Or investing in alternative chip tech — an area where
the region is already forging a lead.
Technological sovereignty is an admirable goal. But Europe
doesn’t need a $30 billion white elephant.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Alex Webb at awebb25@bloomberg.net
To contact the editor responsible for this story:
Nicole Torres at ntorres51@bloomberg.net
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