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recently, many people believe that the european semiconductor market is currently in recession and the situation is not optimistic.

europe may be a year behind the rest of the world in hitting the downturn, with market firm future horizons predicting that the european semiconductor market will only grow 8% in 2025.

currently, the automotive and industrial markets in europe have begun to show negative growth. more specifically, optoelectronics and discrete devices are performing poorly, the mcu market is shrinking and showing negative growth, and the analog market has also experienced 17 months of negative growth. these signs have caused the european market to worry about overstocking in early 2025.

europe's input-output in semiconductors seems to have been in a state of "much ado about nothing", with many policies but little effect. what happened to european semiconductors?

european semiconductor industry

objectively speaking, the european semiconductor industry is not "weak". in 2023, several european companies can also be seen among the top 25 semiconductor manufacturers in the world.

infineon technologies of germany,it is a leader in power semiconductors and energy efficiency solutions. the company's expertise in power electronics covers automotive, industrial and renewable energy applications. in 2023, infineon's sales revenue was 16.309 billion euros, a year-on-year increase of 15%.

stmicroelectronicsit can provide a wide range of semiconductor solutions covering applications in the automotive, industrial and internet of things (iot) fields. in 2023, stmicroelectronics' sales increased by 7% to us$17.2 billion.

nxp semiconductors of the netherlandsit also leads the field of automotive semiconductors. as a major provider of secure connectivity and embedded processing solutions for connected cars, it plays an important role in the rapidly developing automotive industry. in 2023, nxp semiconductors' revenue reached us$13.28 billion.

it is not difficult to find that european semiconductor companies have a considerable leading advantage in the automotive market. the three traditional large companies are leaders in related fields. in addition, european manufacturers also have a certain "voice" in the upstream of the semiconductor industry. jpmorgan has three "favorable" european semiconductor equipment companies.

swiss company vat group produces vacuum valves used in chip manufacturing. vat's stock price rose 42% from january 2023 to september 2024. vat's business began to grow as the semiconductor equipment market developed.

asml, a dutch company, produces lithography machines used to manufacture semiconductors. asml holds a monopoly on extreme ultraviolet (euv) lithography technology and, as the only supplier of large-scale euv lithography machines, holds a key position in enabling the production of smaller and more powerful semiconductor components.

asm international, also a dutch company, also makes lithography machines used to make semiconductors. asm international shares have risen 68% in the past 12 months. asmi's thin-film deposition tools are essential for making cutting-edge logic and memory chips used in artificial intelligence infrastructure. nigel van putten of morgan stanley said asmi will be a major beneficiary as the semiconductor industry adopts the next-generation chip architecture known as gate-all-around. he expects asmi's growth rate to exceed the overall chip equipment market in the next few years.

where is the gap in european semiconductors?

although european semiconductors have accumulated a certain amount of experience in the automotive market, they seem to have missed the trend in 2024. europe's performance in the data center and artificial intelligence server consumer markets is relatively weak. currently, these markets are mainly concentrated in the united states and china, and there is a large demand for memory chips and high-performance processors, which can fully support the global chip market.

however, the european market demand for such applications is not hot, and europe still relies on traditional industrial and automotive applications. however, the european automotive and industrial markets performed poorly in 2023, and related chip products were in oversupply, affecting the revenue of european chip component supply-side companies.

infineon technologies, one of the european semiconductor "big three", lowered its revenue forecast for fiscal year 2024 from 16.5 billion to 17.5 billion euros to 15.5 billion to 16.5 billion euros, and expected the second quarter to be particularly difficult. stmicroelectronics also issued pessimistic guidance, saying that automotive terminal demand was stable, personal electronics demand did not grow significantly, and industrial product demand further deteriorated; the guidance announced by norway's nordic semiconductor asa at the beginning of the year was also lower than market expectations; semiconductor equipment encoder manufacturer renishaw plc also saw continued weakness in demand in the industrial control industry.

according to statistics from the german distribution trade organization fbdi, in the fourth quarter of 2023, distributors registered with the organization saw revenue drop by 20.1%, bookings drop by 56%, and the book-to-bill ratio was 0.47, which indicates a severe market situation in the coming quarters.

in addition to the domestic market missing out, the european semiconductor market has also been severely affected by the us ban. the us has imposed comprehensive restrictions on chinese companies importing high-end chips and prevented europe and japan from exporting chip equipment to china. the ban on china has put asml in a dilemma, unable to ship euv lithography machines to china, but china is the world's largest chip market and one of asml's most important customers.

the us policy has caused tension and chaos in the global chip supply chain, leading to rising chip prices and supply shortages. for european semiconductor manufacturers, on the one hand, they need to face higher costs, including purchasing raw materials and equipment and opening up new markets; on the other hand, they also face price competition and market share competition from manufacturers in china and other regions. after all, the us ban was not formulated for european manufacturers.

the european semiconductor industry has always been vigilant about this situation, and has always hoped to improve the competitiveness of local companies through relevant policies. in fact, since 2022, the eu has proposed a european version of the chip bill, hoping to not fall behind in the global semiconductor competition. however, the once glorious european chip bill is facing the crisis of "unachievable".

from 1.0 to 2.0, europe's semiconductor industry policy is still at zero

in february 2022, the eu proposed the european chip act, which was formally approved by the european parliament and the european council in july 2023 and will come into effect in september 2023. the act is expected to invest more than 43 billion euros in the semiconductor industry, including direct public funding and private investment attracted through incentives.

as an important outcome of the bill, the eu agreed to subsidize tsmc's 10 billion euro german factory project and intel's plan to build a project in germany.

after the european commission approved 5 billion euros in aid, tsmc started construction of its semiconductor factory in dresden, germany in august 2024, which will become an important supplier to the european automotive industry. tsmc plans to invest 3.5 billion euros in this project and hold a 70% stake in the factory, while the remaining 30% will be held by the dutch nxp group, the german infineon group and the bosch group, each holding 10%.

but intel's project does not seem to have arrived as promised. not long ago, intel officially announced that it would suspend its advanced packaging plant project in poland and its wafer fab construction project in germany for about two years. german technology policy think tank interface pointed out in a recent report that the eu's 2030 semiconductor goal is "no longer achievable."

the european chip act aims to increase europe's share of the global semiconductor production market to at least 20% by 2030. regarding this goal, peter wennink, former ceo of dutch semiconductor equipment manufacturer asml, said that given the current level of investment and the challenges of significantly increasing production capacity within a given time, the goals set by the bill are "completely unrealistic."

thus, the chip act 2.0 came into being. in september 2024, the european semiconductor industry association (esia) industry association called on the new eu leadership to speed up the introduction of the "chip act 2.0" support policy to focus on incentives and cooperation, speed up the issuance of subsidies, adopt an open trade policy, and balance economic security and market demand.

esia called on the eu to put "industrial competitiveness" first and speed up the disbursement of subsidy funds. it proposed the establishment of a special "chip envoy" role to coordinate and unify cross-sector industrial policies, ensure policy consistency and effectiveness, and advocate that the semiconductor industry be deeply integrated into the decision-making process of the european semiconductor commission to enhance the industry orientation of policies.

in terms of trade policy, esia specifically emphasized the global nature of the semiconductor industry, calling on the eu to adopt an "open trade" strategy to maintain a high degree of openness and flexibility in the supply chain. esia believes that it is difficult to support large-scale business cases, such as sales of hundreds of millions of high-quality components, on the domestic european market alone. therefore, protecting economic security should not rely solely on defensive restrictions, but should adopt more support and incentives to promote the healthy growth of the industry. regarding export control issues, esia advocates that it should adhere to the original intention of maintaining international peace and security and avoid excessive intervention in the normal operation of the market.

some external factors, such as pressure from the us government, will have an impact on the export policy of the european semiconductor industry. therefore, esia calls on the eu to carefully consider when making decisions to avoid damaging the core interests of its own and european companies. esia recommends that the eu establish a structured mechanism to permanently involve the industry in this issue. for example, an official agency to coordinate export controls is established, and the semiconductor industry is allowed to serve as a permanent consultant. in addition, the document also calls on the eu to avoid restricting the industry's use of some specialty chemicals and materials, and to strengthen the training of scarce talents in the industry.

summarize

european chipmakers say a profitable business case might start with the sale of 500 million high-quality components, a scale that the european market alone cannot provide.

this view shows that the biggest problem of european semiconductors is that there is not enough market. under the influence of certain factors, european semiconductor companies are getting further and further away from their customers and their relationship with their customers is getting worse and worse.

as the european semiconductor industry association believes, "a more proactive approach is needed to protect economic security, based on support and incentives rather than a defensive approach that relies on restrictions and protective measures."

the original goal of export control is to contribute to international peace and security, not to harm others and benefit oneself.