Implications of the European Chips Act for defence and aerospace manufacturing

Semiconductor chips are the essential building blocks of digital and digitised products. From smartphones and cars, through critical applications and infrastructures for healthcare, energy, mobility, communications and industrial automation, chips are central to the modern digital economy. They determine performance characteristics of digital systems, among them security and energy-efficiency – essential to the EU’s digital and green transitions. They are also crucial to key digital technologies of the future, including artificial intelligence (AI), 5G and edge computing, as set out in the EU’s 2030 Digital Decade.  Put simply, there is no “digital” without chips.

Since the beginning of the pandemic in early 2020, Europe and other regions of the world have been experiencing significant supply challenges, and shortages of chips. As the digital transformation accelerates and penetrates every part of society, a penury of chips undermines industrial production and economic development across all sectors and has potentially serious societal consequences. Supply chain disruptions in semiconductors have focused the world’s attention on chips as the heart of the economy and of our daily lives.

The semiconductor sector is both capital and knowledge intensive, and subject to rapid technological evolution. Production of chips takes place in a supply chain that is global, complex and, in some important segments, overly concentrated. For example, today only two companies in the world, located in Taiwan and South Korea, are capable of manufacturing the most advanced chips.

In semiconductors, Europe is strong in some specific areas, such as in the design of components for power electronics, radio frequency and analogue devices, sensors and microcontrollers that are widely used in the automotive and manufacturing industries. Europe is also the world's centre for semiconductor research. It has leading research centres that are advancing global developments of state-of-the-art semiconductor technologies. European technology is in fact a key enabler of miniaturisation  in chips; concepts such as FinFET and Gate All Around  are required for the production of the next-generation powerful chips, and FDSOI technology  is crucial for reducing energy consumption.

Europe is also very well positioned in terms of the materials and equipment needed to run large chip manufacturing plants, with many companies playing essential roles along the supply chain. It has also strong and diversified industrial end user sectors e.g. automotive, industrial automation, healthcare, energy, communication, agriculture etc.