The future of semiconductor manufacturing in Europe: Key challenges

Chips play a crucial role in a wide range of technological products, continually fueling the growing demand for these components. Semiconductor production, essential for chip manufacturing, is largely concentrated in Asia, from where they are distributed to European markets. However, global events such as the COVID-19 pandemic and the war in Ukraine have exposed the weaknesses in the semiconductor supply chain and Europe’s heavy dependence on Asian producers. In response to these challenges, governments and companies are taking steps to develop local semiconductor production, potentially positioning Europe as a key player in the global market. In this article, we will discuss what semiconductors are, the current market landscape, the driving factors behind its growth, what the EU Chips Act is, and the initiatives European companies are taking to expand chip production.

What are semiconductors?

Semiconductors are crystalline substances whose electrical conductivity lies between conductors (e.g., copper) and insulators (e.g., glass). A distinctive feature of semiconductors is the ability to regulate their conductivity by factors such as temperature, chemical doping, or light. Unlike metals, their conductivity increases with rising temperatures. Semiconductors are divided into two types: intrinsic (pure) and extrinsic (doped). Pure semiconductors, such as silicon or germanium, consist solely of one type of atom. In contrast, doped semiconductors, such as gallium arsenide or gallium nitride, are created by adding foreign atoms (dopants), altering their conductive properties. The most commonly used semiconductor material is silicon.

Key components in electronics: transistors, diodes, and chips

Semiconductors are the basis for various electronic components, such as transistors, diodes, and chips (integrated circuits). These key elements are the foundation of modern electronics and perform multiple functions. Chips process data, perform calculations, store information, and manage device operations. Diodes allow the flow of electric current in only one direction. Their primary tasks include converting alternating current (AC) to direct current (DC), protecting electronic systems from voltage surges, and regulating voltage. Transistors, on the other hand, act as amplifiers or switches for electrical signals, allowing control of current flow. The large number of transistors on chips enables information processing and powers modern devices.

To illustrate the scale, a single smartphone requires an average of 160 chips, while an electric vehicle needs as many as 3,500 chips. These numbers show how critical semiconductors are in modern electronics and technology development.

The semiconductor market

According to the Deloitte "2024 Semiconductor Industry Outlook" report, 75% of global semiconductor manufacturing capacity is located in Asia. Moreover, the continent's share in chip assembly and testing is even higher, reaching 90%. Major players in the semiconductor industry, such as Intel, are companies that maintain full control over the semiconductor supply chain by owning their factories for designing, producing, and testing chips. However, to reduce costs and focus on design, most companies outsource the assembly and testing processes to specialized external companies known as OSAT (Outsourced Semiconductor Assembly and Test). In 2022, about 80% of large OSAT firms were headquartered in China and Taiwan. Therefore, not only production but also a significant portion of assembly and testing takes place in Asia. Data from the Deloitte report predicts that global semiconductor sales will reach $588 billion in 2024, marking a 13% increase over 2023 and 2.5% more than the record-breaking $574 billion in industry revenues in 2022.

Forecasts for the semiconductor market size by application area for 2025 and 2030 are presented in the chart below. The data was sourced from the official website of the Council of the European Union and the Council of Europe.

Factors driving semiconductor production

Several key factors drive semiconductor production. First and foremost, growing demand for advanced electronics, such as smartphones, laptops, electric vehicles, and IoT devices, requires increasingly efficient and miniaturized integrated circuits. The development of communication technologies and technological innovations such as artificial intelligence and 5G networks generate demand for electronic components with higher computing power and lower energy consumption. An essential factor is also the advancement of industrial automation, which enables the creation of more efficient processes in factories and smart production using robots. In Central Europe, the automotive industry is the main driver of semiconductor demand. Additionally, the growing trend towards electric vehicles (EV), including the development of charging infrastructure, has led to a surge in demand for advanced semiconductor components such as silicon carbide (SiC) chips.

Actions supporting the growth of semiconductor production in Europe

EU Chips Act

The EU Chips Act is legislation adopted by the European Council on July 25, 2023, aimed at strengthening the semiconductor sector and increasing Europe’s technological self-sufficiency. The EU Chips Act includes various initiatives, including the "Chips for Europe" program, designed to develop innovative technologies and ensure supply stability by attracting new investments. This initiative aims to mobilize up to €43 billion in public and private funding, of which €3.3 billion comes from the European Union's budget.

A key goal of the legislation is to address the microchip shortage in the European market and reduce dependence on foreign suppliers, contributing to the continent's technological sovereignty. The aim is to achieve at least a 20% share of the global semiconductor market by 2030 (in 2022, it was 10%). The new regulations will not only strengthen Europe's industrial base but also create conditions for developing new high-quality jobs and better utilization of future business opportunities.

Summary

The development of the semiconductor market in Central Europe, driven by growing global demand, investments in innovation, and government support, opens new opportunities for the entire technology sector. Initiatives such as the EU Chips Act and organizations like Semicon Supply Poland play a crucial role in building technological self-sufficiency and increasing Europe's share in the global semiconductor market.

Poland, with its strategic location and strong industrial base, has the opportunity to play a significant role in the future of this industry. Investments in chip production, infrastructure development, and talent support could position Europe as a key player in the semiconductor market, reducing dependence on Asian suppliers in the long run and strengthening Europe’s position on the international stage.