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The war in Ukraine reinforces the urgency for the European Union and the United States to rapidly expand their production capacities for electronic chips, while Asia now concentrates 80% of the world’s manufacturing.
Since February 24, war has been raging in Ukraine after Vladimir Putin’s decision to invade this country of the former Soviet bloc. If this armed conflict is humanly dramatic, it also has more unexpected consequences. And for good reason, several materials necessary for the manufacture of electronic chips are imported from Russia and Ukraine. These components are present in smartphones, computers, game consoles, televisions, cars, and even washing machines.
The supply difficulties caused by this war are indeed weakening American manufacturers who use Ukrainian neon gas in particular to burn chips, according to the firm Techcet. Its export made it possible to meet almost 90% of the needs. As for Russia, it recently supplied about 33% of the world demand for palladium, another key element in the manufacture of electronic chips.
Ursula von der Leyen, the president of the European Commission, indicated that semiconductors would be affected by the arsenal of sanctions imposed by Brussels on Moscow. As a result, the war in the east could quickly lead to delivery delays or even halted shipments that could further aggravate the global shortage of semiconductors, as a bright spot seemed to be on the horizon for the sector in the coming months.
10% of world production in Europe, 12% in the United States
The Russian-Ukrainian conflict thus reinforces the imperative need for Europe and the United States to rapidly expand their production capacities for electronic chips, while Asia alone concentrates 80% of world production. Because while the Asian continent, under the impulse of Taiwan, developed its hegemony in this industry, the Old Continent and Uncle Sam saw their weight in world production melting like snow in the sun.
Thus, Europe today produces less than 10% of electronic chips in the world, against 40% 30 years ago, US production fell by 25% at the same time. This now represents only 12% of global production of semiconductors, a market that should double by 2030 and weigh 1,000 billion dollars.
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There have been virtually no new foundries opening in Europe for fifteen years
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In this context, Europeans and Americans are working hard to come back to the fore. Thierry Breton, European Commissioner for the Internal Market, thus presented in early February the Chips Act, a 42 billion euro plan to enable the EU to reach 20% of world production of semiconductors by 2030. . “The Commission has set itself objectives which go in the right direction, even if they may seem extremely ambitious. Because there has been almost no opening of new foundries in Europe for fifteen years. No factory there is capable of mass producing chips with finenesses of less than 10 nanometers – even if a prototype exists in Ireland – and Europe today produces only 5% of world volumes on the 10-20 nanometers”, explained to echoes Mathieu Duchâtel, director of the Asia program at the Institut Montaigne, after the presentation of the Chips Act.
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Brussels flirts with giants like Intel
The strategy of the Brussels executive plans in particular to devote 12 billion euros, half of which comes directly from community pockets, to R&D. The objective is to manage to design the electronic chips of tomorrow and finance pilot lines to guarantee the large-scale production of the latter, knowing that a line alone represents an investment of more than one billion euros. At the same time, it is planned to mobilize 30 billion euros in public aid as part of the European recovery plan, which the Member States will grant to major industrialists in the sector able to create “mega-factories”.
The latter, Intel in the lead, had not failed to make lighthouse calls in Brussels in recent months. In 2021, Pat Gelsinger, boss of the foundry across the Atlantic, had indicated that the construction of a giant factory of electronic chips in Europe would require 8 billion euros in public subsidies. A request heard by Thierry Breton who therefore accelerated the pace and presented the Chips Act at the start of the year. “The Chips Act is not only a good idea, it is essential”estimated Pat Gelsinger in an interview given to Figaro early February, just before the presentation of the European Commission’s roadmap.
The CEO of Intel had also indicated that his group could invest 80 billion euros there by 2030, in particular to build a gigantic production site. Pat Gelsinger did not lie since a source familiar with the matter spilled the beans to Reuters… It was therefore the German city of Magdeburg, capital of the land of Saxony-Anhalt, which was selected. Production of the new plant could start in 2024.
In total, Brussels hopes that the Chips Act will allow the emergence of three to five very large factories (“Megafabs”), which leaves Mathieu Duchâtel doubtful, always with the echoes : “I think Europe will manage to attract a factory. I’m more skeptical that there could be several within five years at sub-7nm nodes.” Time will therefore be the judge of the peace.
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Several mega-factories planned in the United States
Of course, Intel is not betting only on Europe. Faced with the effort demanded by Joe Biden on his arrival at the White House, the Santa Clara firm intends to build a gigantic microchip production site in Ohio, in the United States. With this outsized project, Intel could potentially become the owner of the largest processor manufacturing complex in the world, bringing together eight factories in total. To complete this project, Intel plans to invest 100 billion dollars over a decade and employ 10,000 people.
Across the Atlantic, a major plan of 52 billion dollars was also voted by the House of Representatives to boost US production of semiconductors. The authorities thus intend to reproduce the pattern of collaboration between NASA and SpaceX. It is still necessary that the House of Representatives and the Senate agree on the same text for the plan to be executed…
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For States and companies in the sector, it is obviously a question of meeting the massive global demand for electronic components to avoid a new shortage, but also of flexing their muscles in the face of competition that does not hesitate to raise tens of billions dollars on the table to take the lion’s share. In 2021, Samsung had for example announced an investment of 205 billion dollars over three years to ramp up in semiconductors, biopharmaceuticals, artificial intelligence or robotics. The South Korean giant notably plans to build a microchip factory in Texas for $17 billion. A start of production is planned for the end of 2024.
The United States is also a destination that interests the Taiwanese group TSMC, wishing to open a factory in Arizona from 2024. The resources mobilized by the world leader in electronic chips are significant since it plans to invest 36 billion euros for the year 2022 alone, after having put more than 25 billion dollars on the table in 2021. In total, the Asian group plans to invest 100 billion dollars over three years in its production units. “God decided where the oil fields are, we can decide where the factories are”estimated Pat Gelsinger, the boss of Intel, with the Figaro last February. While manufacturers of electronic components have already increased their production capacities by 15% over the past two years, to $20 billion per production unit, the current semiconductor crisis is not expected to end before 2023, according to Deloitte.
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A China “late, but motivated”
TSMC: this is a company that makes China dream. Because if the Middle Kingdom has given birth to giants like Alibaba, Tencent, Huawei or Xiaomi, it is still sorely lacking in electronic chips. Thus, China provides only 7.6% of the electronic components marketed in the world, while it produces 36% of the world’s electronics. A significant discrepancy illustrated by Semiconductor Manufacturing International Corporation (SMIC), one of the main Chinese producers of semiconductors, which would have “four to five years behind TSMC’s technology, despite nearly two decades of investment”according to a note published in 2021 by the Brookings Institution think tank and titled with a very evocative Lagging but motivated (late, but motivated).
To catch up, Beijing is increasing acquisitions in the sector. In this context, Beijing can in particular rely on the investment fund Wise Road Capital, presented as independent, but whose several shareholders are closely linked to the Chinese state, according to an analysis by the firm Datenna. for The world. It appears that this fund is “used by Beijing as an instrument of its technological rise”. This investment vehicle was particularly interested in the French company Unity Semiconductor (SC) in the spring of 2021.
China is not content to go through front companies to quietly increase its power in the semiconductor industry. It has also launched a real offensive on the occasion of its Made in China 2025 plan launched in 2015. It is on this horizon that the Asian behemoth plans to produce 70% of its annual national consumption of electronic components, against 15% currently. . To achieve this, the state has notably put into orbit a fund of 50 billion dollars aimed at bringing out Chinese champions in semiconductors and financing research centers. Not to mention the massive formation of an “army” of engineers and technicians…
A Chinese invasion of Taiwan could change everything
Despite the means mobilised, China is struggling to achieve its objectives, especially since at the same time the United States, the EU, Japan, South Korea and Taiwan are doing everything they can to protect their technological lead in the electronic chips. Moreover, these countries share the sector’s global supply chain, while China remains isolated, not without holding a wildcard linked to rare earths.
Unless they attempt a hypothetical annexation of Taiwan – which can count for the time being on the strong support of Washington – to increase its strike force tenfold on the world market for electronic chips, China should therefore remain behind the Western bloc for a while longer. . But faced with a new geopolitical deal, the United States and the EU are stepping up the pace to no longer find themselves in a situation of dependence. At the same time, the Chinese no longer intend to suffer from the sanctions imposed by Washington. What was a technological battle a few years ago has turned into a multi-polar challenge that is expected to intensify over the decade.
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