U.S. chipmaker Broadcom (AVGO.O) will invest in a European Union-funded program to develop a semiconductor industry in Spain, Chief Executive Charlie Kawwas said late on Thursday. “Excited to announce our decision to invest in Spain’s semiconductor ecosystem under their semiconductor support program,” Kawwas said on his Twitter account. The project in which Broadcom would be involved could be worth $1 billion, the Spanish economy ministry said in an emailed statement. The ministry added that the program included building large-scale back-end semiconductor facilities unique in Europe but did not specify a location.
The initiative is part of the EU’s efforts to strengthen its chipmaking capabilities and reduce its reliance on U.S. and Asian supply chains, triggered by a global shortage of the necessary raw material. Increasing chip production in the European Union also helps to reduce dependence on third parties for geopolitical influence over the technology. It could help protect the EU from disruptions caused by natural disasters or other events.
To this end, the EU has established a ‘Chip Law’ or ‘Chips Act’ to stimulate investment in its chip sector and encourage companies in the value chain to collaborate and develop their activities together. The act also provides a fast track to aid for ‘first of a kind’ facilities that contribute to the security and resilience of the EU’s internal semiconductor supply. This includes semiconductor manufacturing plants and equipment and innovative high-density chip packaging, assembly, and integration centers.
It has also provided funding for several projects, including research and development in advanced transistors, memory, and nanotechnology, and for developing new manufacturing techniques. These are expected to be critical for developing electronic systems and components.
PERTE Chip, Spain’s version of the European initiative, is intended to boost design capability and accelerate innovation by establishing a network of competence centers. It also aims to improve market conditions to foster a more active role in the global ecosystem.
In the longer term, however, the success of this effort depends on more than just access to public funds. A proper industrial policy that is targeted at the highest end of the value chain needs to be designed. Heavy subsidies to build capacity should be avoided, as this is expensive and less useful than increasing Europe’s role in the sector by investing in R&D.
The upcoming parliamentary elections will be the first test of whether the EU can develop and implement such a policy without being overshadowed by other concerns such as the euro crisis, Brexit, or immigration. The results will also reveal how serious the EU is about addressing its shortcomings in terms of industrial strategy and how well it can deliver on its objectives for increased self-sufficiency in a crucial sector such as chip production. The stakes are high for both the EU and its Member States. The EU needs to do more to ensure it is not vulnerable to external supply chain disruptions and political interference.