In February this year, European Union member states revealed they were considering building a $30 billion fab that could eventually churn out 5 nm and 2 nm chips, in a bid to ditch import dependence on Asian semiconductor industry players. News article after news article has since reported on what amounts to a pivotal decision that will profoundly affect semiconductor manufacturing in Europe for decades to come. But does such a bold idea even make sense?
Europe’s technology independence needs a long-term strategy tailored to its existing infrastructure, not a $30 billion cathedral in an industrial wasteland.
The market research & strategy consulting company, Yole Développement (Yole), has been following the semiconductor industry for many years. Through a wide collection of reports, including the Status of the Power Electronics Industry, Status of the Memory Industry, Status of the CIS Industry and Status of the Advanced Packaging Industry and more, Yole’s analysts deliver a comprehensive understanding of how markets evolve and technical disruptions. Today, they offer you a snapshot of the semiconductor industry and analyse the strategy in each region of the globe.
The EU quandary comes at a time when Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics, South Korea, are dominating the open semiconductor foundry market. They have become the manufacturing subcontractors of the world by pulling together the enormous capital investments this industry requires.
US and EU semiconductor players have bought into this “fab-less” business model, with its its huge profit generating potential. But US-China-trade war and the pandemic have illustrated just how dependent the world is on the two industry titans.
Back in March 2020 as the pandemic gathered momentum, world auto-makers abruptly stopped manufacturing, prompting chip suppliers and device manufacturers to literally lose hundreds of millions of dollars of orders overnight. In swift response, production was re-allocated to other businesses including manufacturers of laptops, notebooks and home networking equipment that were scrambling to meet unprecedented demand from the new stay-at-home economy.
Towards the end of the year, car manufacturers then attempted to restart production but stalled. Semiconductor production was in full-swing, delivering chips to consumer electronics and communications industries that had accelerated production to fulfil additional orders from Huawei and meet back-to-school and holiday demand as well as the Christmas rush.
In line with the fundamental laws of supply and demand, semiconductor manufacturers offered to provide chips to auto-makers at a higher price. But these businesses declined, leaving chip suppliers to focus on more lucrative customers.
In essence, the scarcity of chips is a result of automotive supplier and customer issues rather than true semiconductor shortages, signalling a need for better relations here. These chip shortages will start to be resolved in the coming months as both car and chip production ramps, but in the meantime, the pandemic portends longer-term shortages for all.
Following the cries of a global chip shortage, TSMC is pushing ahead with plans to pour a colossal $28 billion into capital spending this year, which includes building a $12 billion, 5 nm fab in Arizona, US, that could churn out some 20,000 wafers a month come 2024. Samsung is also reported to be considering building advanced chip manufacturing in Texas. US, that could start operations by 2023.
Against this backdrop, the rest of the world is worried about import dependence on Taiwan and South Korea. US chip industry association, SEMI, and numerous industry groups including the Semiconductor Industry Association, recently penned a letter to President Biden urging US administration to bolster domestic semiconductor manufacturing. At the same time, Chinese government has declared a goal of ‘technology independence’ in a recent five-year plan.
Given these industry developments, the EU option to build a 5 nm semiconductor fabrication plant to meet demand in Europe appears reasonable. But in reality, a $30 billion fab plant is a perilous way to secure European technological sovereignty.
For starters, constructing such a state-of-the-art facility, without support from TSMC or Samsung, will take at least 10 to 15 years and demand tens of billions of dollars of investment. What’s more, this eye-wateringly expensive endeavour won’t necessarily end in success. Intel has encountered difficulties on delivering its own advanced 7 nm manufacturing process – if the US computing giant can’t easily succeed at this process node, should Europe pursue an even riskier jump to 5 nm?
Instead of tackling it alone, the only way for the EU to establish a 5 nm fab in Europe would be to follow a similar path to the US, and team up with TSMC or Samsung. The joint effort would require fewer funds from Europe – around $10 billion – and dramatically cut development times from 10 to 15 years to around 3 to 4 years.
But how would this route solve the sovereignty issue? And with or without TSMC or Samsung, how much demand will there be in Europe for 5 nm, in 3 to 4 years time? All the volumes of wafers to be produced for the continent’s telecommunication, automotive and other industries simply won’t fill such a fab, killing the rationale of this huge investment.
The right route
So what’s the answer? Given the long lead time of fab construction and equipment instalment, device manufacturers will continue to rely on, and will most certainly increase, manufacturing outsourcing to TSMC and Samsung for a few years to come. But moving forwards, the best way to technological sovereignty is to invest wisely and create a robust manufacturing ecosystem that will deliver semiconductors to European companies in the long run.
Europe is already home to cutting-edge chip manufacturers and equipment suppliers, each with annual sales from $4 to $16 billion. These include STMicroelectronics, Infineon Technologies, NXP Semiconductors and ams as well as Global Foundries with its Germany fab, Intel and ASML. Meanwhile, several smaller but strong industry players co-exist in Europe, including semiconductor foundries, Tower Semiconductor and X-Fab, each generating between $500 million and $1 billion in sales every year.
Then at least 200 companies, including the IDMs, subsidiaries of system makers and semiconductor equipment manufacturers, are sprinkled across Europe. The likes of Elmos, Murata Europe, Besi, EVG, Soitec and Siltronic each earn less than $500 million annually but sustain Europe’s manufacturing and technology independence.
Given this rich and established tapestry of industrial semiconductor players, the European Union and national states need a solid strategy to strengthen these suppliers. A first, important step, is to build the intermediary nodes, 14 nm or 7 nm foundries, in Europe that will support the continent’s current automotive, telecommunication, IoT and industrial applications. These facilities could be EU-funded but also co-developed with ST, Infineon, NXP, ams and Asml.
At the same time, the EU should invest in activities such as heterogenous integration, advanced packaging and chip partitioning from 14 nm to 7 nm would also avoid the urgent need for 5 nm and 2 nm chip production while enriching Europe’s technology know-how. And a further step could be to leverage Europe’s strong R&D effort in emerging computing and photonics where a large number of companies and start-ups have a role to play.
Such a strategy would strengthen Europe’s semiconductor industry and provide a path toward 5nm and below in the longer term. What’s more, this approach would prevent key more manufacturers from being bought by US- and Asia-based companies, which given recent events is a growing trend.
In 20I4, LFoundry shut down its fab in Rousset, France, in 2016 Italian fab, Avezzano, was sold to China’s SMIC and then in late 2020, Nvidia, US, proposed to acquire UK-based Arm. Earlier this year, Japan’s Renesas bought Dialog, UK, and Taiwan’s Globalwafers is in talks to buy Europe’s key wafer substrate provider,Siltronic, Germany.
The prospect of financing a 5 nm foundry in Europe while the continent’s finest semiconductor businesses are being subsumed by US- and Asia-based behemoths is akin to building a cathedral in the desert. Investing in home-grown businesses and infrastructure that will help Europe’s technology ecosystem to flourish is the only way forward, otherwise the continent could one day become an industrial desert with an empty 5nm cathedral at the center.
About the authors
Jean-Christophe Eloy is President and CEO of the Yole Développement company. Created in 1998, the market research & strategy consulting company has grown to become a group of companies providing marketing, technology and strategy consulting, media in addition to corporate finance services. His mission is to oversee the strategic direction of Yole Group of Companies.
With System Plus Consulting, Blumorpho, PISEO and Yole Développement, Yole Group of Companies has developed a unique understanding of technologies to accurately evaluate markets, applications, solutions and strategies.
With more than 70 analysts, including PhD and MBA qualified industry veterans, the group collects information, identifies trends, challenges, emerging markets, and competitive environments and then turns that information into results to give a complete picture of the industry’s landscape.
All year long, Jean-Christophe builds deep relationships with leading semiconductor companies, discussing and sharing information across his global network. His aim is to get a comprehensive understanding of their strengths and guide their success.
Thibault Buisson serves as a Chief Operating Officer of Yole Développement (Yole), part of Yole Group of Companies. Previously he was Business Unit Manager of the Advanced Packaging & Semiconductor Manufacturing team, and has 15 years of direct experience within the semiconductor industry.
Before Yole, Thibault worked for over 5 years at IMEC (Leuven, Belgium) as a process integration engineer in the field of 3D technology. He started his career at NXP Semiconductors (Grenoble, France) as an R&D process engineer in the thermal treatment area to develop CMOS technology devices.
Thibault Buisson has authored or co-authored more than fifteen international publications in the semiconductor field and has spoken at several conferences and symposiums, including keynotes, in the field of advanced packaging and semiconductor.
Thibault graduated from the Institute of Technology (INP – Grenoble, France) with a Master of Research Degree in Micro and Nano Electronics, and from Polytech (Grenoble, France) with an engineering degree in Material Sciences.
Pierre Cambou MSc, MBA, is a Principal analyst in the Photonics and Sensing Division at Yole Développement (Yole).
Pierre’s mission is dedicated to imaging related activities by providing market & technology analyses along with strategy consulting services to semiconductor companies.
He has been deeply involved in the design of early mobile camera modules and the introduction of 3D semiconductor approaches to CMOS Image Sensors (CIS).
At Yole, Pierre is responsible for the CIS Quarterly Market Monitor while he has authored more than 15 Yole Market & Technology reports. Known as an expert in the imaging industry, he is regularly interviewed and quoted by leading international media.
Pierre has an Engineering degree from Université de Technologie de Compiègne (France) and a Master of Science from Virginia Tech. (VA, USA). Pierre also graduated with an MBA from Grenoble Ecole de Management (France).
Emilie Jolivet is Director of the Semiconductor, Memory & Computing Division at Yole Développement, part of Yole Group of Companies, where her specific interests cover package & assembly, semiconductor manufacturing, memory and software & computing fields.
Based on her valuable experience in the semiconductor industry, Emilie manages the expansion of the technical and market expertise of the Semiconductor and Software Team.
In addition, Emilie’s mission focusses on the management of business relationships with semiconductor leaders and the development of market research and strategy consulting activities inside the Yole group.
Emilie Jolivet holds a Master’s degree in Applied Physics specializing in Microelectronics from INSA (Toulouse, France). After an internship in failure analysis at Freescale (France), she was an R&D engineer for seven years in the photovoltaic business where she co-authored several scientific articles. Enriched by this experience, she graduated with an MBA from IAE Lyon.
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