EU Chips Act Agreed: An In-Depth Analysis of New EU Semiconductor Regulations and Their Significance in the Industry

The Chips Act has been agreed paving the way to the first European legislation on semiconductors that are crucial for our future.

The so-called “Chips Act” is the proposed European regulation to prevent and remedy semiconductor shortages for which an agreement was finally reached on April 18, 2023, leading to the formal adoption of the Chips Act in the coming months.

In this incisive analysis, we examine why the Chips Act is a crucial legislation in the EU semiconductor industry, discussing its implications and motivations.  This article provides with a concise understanding of the Act’s significance in the ever-evolving technological landscape.

What is the Chips Act?

The Chips Act allocates EUR 43 billion towards the development of a European chip design and manufacturing supply chain, with the primary objective of doubling semiconductor production in the European Union by 2030.

Semiconductors are materials that possess properties between conductors and non-conductors of electricity, making them ideal for use in the components of electronic devices we use daily.  In essence, semiconductors are the core components of the boards on which electronic circuits are arranged to create microchips.  These microchips form the basis for the production of various electronic devices we rely on daily, such as smartphones and cars.

The need for legislation like the Chips Act primarily arises from European Union’s technological dependence on microchips produced mostly in the United States and East Asia.  This dependence has led the EU to face a severe crisis regarding chip shortages due to factors such as the pandemic, geopolitical events like the U.S.-China conflict, the war in Ukraine, and climate change affecting Taiwan in 2021.

The European Union currently holds an estimated share of less than 10 percent in chip production, even though the demand for chips among European citizens has grown exponentially in recent years.  This surge in demand was further fueled by the digitization needs prompted by the pandemic.  It is estimated that the demand for microchips per person could double in the next few years, and with the current resources, this need cannot be met.

The “three pillars” and goals of the agreed Chips Act

The Chips Act is built on three key pillars:

1. Fostering innovation in the chip ecosystem through significant funding and the establishment of the Chips for Europe initiative.  This initiative aims to bolster semiconductor technologies and innovation capabilities, ensuring EU leadership in this field over the medium and long term. It will be primarily implemented through the Chips Joint Undertaking, formerly known as the Key Digital Technologies Joint Undertaking.
2. Enhancing the security of semiconductor supply by creating Integrated Production Facilities (IPFs) and Open European Foundries (OEFs).  IPFs are companies that control the semiconductor design and commercialization supply chain, while OEFs are responsible for producing semiconductors that are then marketed by third parties.  However, to qualify as an IPF or OEF, a company must first be recognized as a first-of-a-kind facility.
3. Establishing a crisis monitoring and response mechanism through collaboration among various entities and the formation of the European Semiconductor Board.  This independent body will oversee the implementation of this third pillar.

Aligned with these three pillars are the following five strategic objectives:

1. Strengthen research and technology leadership.
2. Develop and reinforce Europe’s capacity for innovation in chip design, manufacturing, and packaging.
3. Create a suitable framework to increase production by 2030.
4. Address skill shortages and attract new talent.
5. Develop a comprehensive understanding of global semiconductor supply chains.

Where are we now?

On February 8, 2022, the European Commission submitted the proposed regulation to the Parliament and Council.  There have been several rounds of negotiations over the past few months, leading the Council and Parliament to make numerous amendments to the proposal: however, last April 18, the text of the Chips Act was agreed by the European institutions and the EU member states.

The speed with which the text of the regulation was approved confirms what the Council and Parliament have already announced on several occasions with respect to the need for this regulation to enter into force as soon as possible, in order to achieve its objectives.

On a similar topic, you can read the article “EU’s AI Act agreed as ChatGPT returns to Italy: Accelerating the AI revolution“.

Photo by Laura Ockel on Unsplash