EU plans €43 billion chip supply investment

The bloc hopes coordinating investment across member states will help to support R&D and production

The EU has announced a €43 billion investment in the chip supply chain to combat the ongoing global semiconductor shortage, as well as to lessen its dependency on Asian manufacturers.

The chip industry was hit with a one-two punch of rising demand and constrained supply in 2020, as the pandemic forced factories to close or limit their operations. In addition, extreme weather including droughts, flooding and snowstorms affected production throughout the year, and manufacturers have still not caught up.

Industry leaders, like IBM's president Jim Whitehurst, have said the issues could last until 2023.

The EU's proposed 'chips act' aims to address these issues. It would link R&D with testing, as well as coordinating investment across the bloc. For example, one proposal is to pool public and private funds and allowing state aid to get chip fabs running.

"Chips are at the centre of the global technological race. They are, of course, also the bedrock of our modern economies," said European Commission president Ursula von der Leyen. "The pandemic has also painfully exposed the vulnerability of its supply chains. We have seen that whole production lines came to a standstill. While the demand was increasing, we could not deliver as needed because of the lack of chips."

The move now needs the backing of the European parliament and member states before it can go any further.

The Commission's plan is similar to state aid in other countries. South Korea offered tax breaks to local chipmakers last year, and US President Joe Biden is currently trying to push a $52 billion investment package through Congress.

Per Hong, a supply chain specialist at US consultancy firm Kearney, pointed out that disruptions are likely to continue for months due to the ongoing effects of the pandemic:

"We're still in the early days of the disruption from Omicron running through every stage of the system, from suppliers to distribution to retail. China is seeing its most serious surge of Covid cases since the original outbreak in Wuhan. The government is showing little sign of backing down from its zero-Covid approach so mass lockdowns, forced quarantines, and much stricter checks at ports to prevent cases from coming in are continuing."

The impact of these moves, and other global matters like geopolitics, rising inflation and climate change, continue to constrain chip supply.