Europe in the Intelligent Age 2025

Europe’s starting point: Scaled technology, leading in select segments, needs to catch up in others Strategic posture: Secure access, capacity and adoption in segments where Europe falls behind; strengthen and double-down in segments where Europe leads As the backbone of nearly all electronic devices and next-generation technologies, semiconductors are critical to Europe’s economic and strategic independence. However, this sector is in many segments dominated by the US and China, for example, with Europe’s front-end manufacturing just 9% of total global semiconductor capacity.88 Strengthening access, building domestic production and driving adoption in these segments of semiconductors may reduce Europe’s reliance on foreign supply chains and enhance its tech resilience. In addition, Europe is leading in various segments, such as early-stage R&D for the leading- edge nodes and new materials, semiconductor equipment, power electronics and semiconductors for automotive and industrial applications. Europe’s starting point and potential unlocking actions Europe can draw on its leadership in early R&D, materials, equipment, CPU IP and automotive and industrial applications to compete in semiconductors. However, to ensure retention of its strategic autonomy, Europe needs to structurally strengthen its position in various segments and should consider actions that can overcome challenges in risk funding, energy costs, infrastructure support and talent, including: –Building scale. Europe is home to some of the leading equipment manufacturers in certain areas of the sector (such as lithography or advanced packaging). But in a global value chain, it has limited scale across high-value segments, such as chip design for leading- edge nodes, and front-end and back-end manufacturing. Defining minimum viable, local back-end and front-end manufacturing capacity in Europe could serve as a pillar of the EU initiative to attract foreign, leading-edge designers and manufacturers to the region and to ensure sufficient independence in challenging times. –Simplifying the regulatory and permitting environment. The EU has supported its semiconductor industry through a combination of policy measures, funding programmes and stringent regulations regarding environmental standards, cybersecurity and data protection. European players face higher compliance costs compared to less tightly regulated regions.89 Adopting a simplified permitting process for chips across member states, including streamlined environmental requirements where relevant, may simplify construction processes to attract manufacturers. –Increasing innovation capital and investment. Despite committing large investments through the EU Chips Act, Europe is trailing both China and the US in private funding and public support of the semiconductor industry.90 An EU semiconductor strategy could coordinate funding and architectural choices, addressing the availability of grants, subsidies or R&D tax incentives for leading-edge design centres active in chip design and foundries in selected strategic segments. Exploring avenues to competitively price stable and green energy within strategic domains, such as by providing energy tax reductions, state subsidies and price caps, could create a more favourable operating environment for attracting and retaining manufacturers. –Driving commercialization. Though it has attracted foreign private investments with joint ventures for the construction of new semiconductor fabs, Europe remains challenged by heavily subsidized industries in the US and East Asia and a lack of innovative and scalable back-end manufacturing capabilities. To drive commercialization, Europe could consider defining chip procurement preferences for EU products and a new “EU chips” certification for public and private procurement tenders, e.g. semiconductors for AI data centres or defence. Of course, this only works if these semiconductors are competitive and state-of- the-art – hence the need to do this smartly (e.g. by requiring a minimum amount of European content in the aggregate value-chain steps, where the minimum amount scales with the build-up of Europe’s capabilities). –Strengthening research and talent. Despite being world-leading in early-stage pre- competitive R&D, Europe is experiencing a shortage of specialized engineering talent. A targeted technology skills acquisition programme could attract, develop and retain the talent critical for advancing semiconductor technology in front- and back- end manufacturing, AI chip design and new materials development. Such a programme could include a special visa for graduates and researchers in advanced electronics, enhanced subsidies for high-demand skills like electronic engineering, new EU-wide scholarships for top graduate and PhD students, and early internships and temporary contracts in public and private research centres.4.4 Semiconductors Europe in the Intelligent Age: From Ideas to Action 27