The European Union agreed a 43-billion-euro ($47 billion) chip subsidies plan on Tuesday but the relatively modest budget, lack of a domestic market for cutting-edge chips and red tape could hamper efforts to catch up with the United States and Asia.
The size of subsidies under the EU Chips Act, which aims to tempt the world's top chipmakers to build factories in the bloc and double its share of global output to 20% by 2030, lags the $52 billion CHIPS for America Act.
The legislation is aimed at ensuring the region has supplies of critical components after COVID-19 lockdowns caused major shortages that hurt output of everything from mobile phones to cars and refrigerators.
It also wants to reduce its reliance on Asia. Taiwan accounts for more than 60% of global chip production and concerns are growing about heightened tensions between Taipei and Beijing.
MICROSOFT IS DEVELOPING ITS OWN AI CHIP: REPORT
The legislation which makes it easier for EU governments to provide funding has already attracted interest from Intel Corp, which picked Germany for a new mega chip manufacturing complex backed by 6.8 billion euros in subsidies.
STMicroelectronics has also teamed up with GlobalFoundries and Taiwan's TSMC, is in talks with the German state of Saxony about building a factory there.
But Europe's relatively modest subsidies could put a brake on its ambition, said Richard Windsor of research company Radio Free Mobile.
"The subsidies are still likely to be below those available in Asia once again underlining that semiconductors right now are all about geopolitics and not economics," he wrote in a client note ahead of the EU agreement.
AI TOOLS SUCH AS CHATGPT ARE THE HOTTEST NEW TREND FOR COMPANIES, BUT EXPERTS URGE CAUTION
South Korea, the base of companies such as Samsung, has also unveiled plans to spend hundreds of billions of dollars to boost chipmaking over the next decade. Taiwan - home of TSMC - Japan, India, Vietnam and Thailand are all working on incentives to attract chip industries to their countries.
"Europe and USA are going to struggle to compete against Asia," Windsor said.
GOOD START
The EU Chips Act is a good start given the EU has little choice but to join the subsidy race, but the bloc should play to its chipmaking strengths, said Christopher Cytera, research fellow at the Centre for European Policy Analysis.
Dutch company ASML dominates manufacturing of the machines that are required to produce the latest chips used in phones to cars, Germany's Zeiss leads in eyeglass and camera lenses while Belgium's Solvay and Germany's BASF provide critical chemicals.
The EU's regulatory red tape requiring agreement from 27 member states however could be a problem, industry experts say.
"The United States can get the money approved by Congress, but for Europe to get the money approved they have to go through all the member states and if France and Germany are benefiting, then it's a bit of a problem," Cytera said.
Catching up on the chips race is more than just building factories and the Chips Act acknowledges this with its focus on developing skilled labor for the future, said Anielle Guedes, senior research analyst at IDC Technologies.
"One of the things that the industry needs the most today is to raise the profile of the people that are going to work in the industry in the coming years," she said.
"Otherwise, you can throw money at something like the production facilities, but this is not the kind of thing that you can push capital into and exit on the other side with whatever technology you want."
CLICK HERE TO DOWNLOAD FOX BUSINESS ON THE GO
All the measures to boost output may create their own problems in future as global supply chains return to normal levels, said Rem Korteweg of the Clingendael Institute.
"There are already indications that the worst might be over when it comes to the semiconductor squeeze, so that we might have the risk of heavily-subsidized oversupply a couple of years down the road," he said.
