With its leading research and development hubs, materials and equipment companies and chipmakers, the EU is in a strategic position in the global electronics value chain to support the growth of emerging applications such as autonomous driving, internet of things, artificial intelligence and deep learning. Underpinning the European electronics industry’s competitive muscle requires a new EU-wide strategy aimed at strengthening the value chain and connecting various players. Specializing and investing in key application segments, such as automotive where the EU enjoys a central place at global level, is crucial to helping the European electronics industry hold its ground. In parallel, Europe’s production capabilities need bolstered, requiring effective use of Important Projects of Common European Interest (IPCEI).
On research, development and innovation (RD&I), the upcoming Framework Programme 9 (FP9) must provide unprecedented collaboration and funding opportunities to Europe’s electronics players. Concerning small and medium enterprises (SMEs) and startups, it is vital that EU policies are aligned with global trends and that small and young companies benefit from a business-friendly regulatory framework. And as an overarching action, building a younger, bigger and more diverse talent pipeline is paramount for Europe to innovate in the digital economy.
These were the clarion messages that emerged from the Industry Strategy Symposium (ISS) Europe organized by SEMI in March, an event that brought together more than 100 industry, research and government representatives for in-depth discussions on strategies and innovations for Europe to compete globally. Here are the key takeaways:
1) Build a strong electronics value chain with a focus on emerging demands
In recent years the EU has focused on beefing up semiconductor production in Europe within the 2020-25 window, starting with the EU 10|100|20 Electronic Strategy of 2013. The strategy aims to secure about 20 percent of global semiconductor manufacturing by 2020 with the help of € 10 billion in public and private funding and € 100 billion investment from the industry. Based on current trends, it seems that this goal is not realistic and needs to be revised in a new political, business and technological scenario. Now is the time to change our thinking.
To nourish the electronics industry in Europe, we need to shift our focus to demand. Semiconductors are a key-enabling technology for autonomous driving, wearables, healthcare, virtual and augmented reality (VR/AR), artificial intelligence (AI) and all other internet of things (IoT) and big data applications. To become a world leader in the data economy and energize its semiconductor industry, Europe needs to start by better understanding the evolution of data technologies and their requirements from electronics players, then design and implement an EU-wide strategy focused on strengthening collaboration within the value chain.
2. Specialize and invest in Europe’s strengths that are enabled by electronics
Fueled by increasing demand for smaller, faster and more reliable products with greater power, the global electronics industry has developed a sophisticated global value chain. Europe brings to this ecosystem leading equipment and materials businesses, world-class R&D and education organizations, and key microelectronics hubs throughout Europe that are home to multinationals headquartered both in and outside of the EU. Nevertheless, global competition is growing ever fiercer in the sectors where the European microelectronics industry is most competitive: automotive, energy, healthcare and industrial automation. In the future, Europe is likely to be more challenged between the disruptive business models of North America and the manufacturing capacity of East Asia. The European electronics industry must re-evaluate its strengths and set a strategic direction.
Make no mistake: Europe is in a strong position to advance its microelectronics industry. The EU already boasts leading industries that rely on advances made by electronics design and manufacturing. Take the automotive industry – crucial to Europe’s prosperity. Accounting for 4 percent of the EU GDP and providing 12 million jobs in Europe, according to the European Commission, the EU automotive industry exerts an important multiplier effect in the economy. Automotive is essential to both upstream and downstream industries such as electronics – a level of importance not lost on the EU’s GEAR 2030 Group. Since the 1980s, automotive industry components have increasingly migrated from mechanical to electrochemical and electronics.
Today, electronic components represent close to a third of the cost of an automobile, a proportion that will grow to as high as 50 percent by 2030 with the rise of autonomous and connected vehicles. Automotive experts anticipate that over the next five to 10 years, new cars will feature at least some basic automated driving and data exchange capabilities as electronics deepen their penetration into the automotive value chain. Europe’s leadership position and competitive edge in automotive are under threat by competitors across the world as they invest heavily in information and communications technologies (ICT) and electronics for autonomous driving and connected vehicles. Investing in next-generation cars will help the European electronics industry retain its strong competitive position, as will investments in other key application areas such as healthcare, energy and industrial automation where Europe is a global power.
3) Make better use of Important Projects of Common European Interest (IPCEI)
Microelectronics is capital-intensive, with a state-of-the-art fab easily costing billions of euros. That’s why countries around the world are making heavy government-backed investments to build domestic fabs. For instance, China’s “Made in China 2025” initiative, which establishes an Integrated Circuit Fund to support the development of the electronics industry, calls for 150 billion USD in funding to replace imported semiconductors with homegrown devices. In 2014, the European Commission adopted new rules to IPCEI, giving Member States a tool for financing large, strategically important transnational projects. IPCEI should help Member States fill funding gaps to overcome market failures and reinvigorate projects that otherwise would not have taken off. To fully benefit from the IPCEI, the industry requires Member States involved in a specific IPCEI to work in parallel and at the same pace and faster approvals of state-supported manufacturing projects.
4) Use FP9 to strengthen Europe’s RD&I capabilities
A top EU priority in recent years has been to enhance Europe’s position as a world leader in the digital economy. Fulfilling this mission requires an innovative electronics industry in Europe. To this end, FP9 should encourage greater collaboration between large and small companies to leverage their complementary strengths – the dynamism, agility and innovation of smaller companies and the ability of larger companies to mature and scale new product ideas on the strength of their extensive private funding instruments and testing and demonstration facilities.
Also, future EU-funded research actions should prioritize electronics projects involving players across the value chain, starting with materials and equipment providers and spanning chipmakers, system integrators and players from emerging “smart” verticals such as automotive, medical technology and energy. FP9 should also play the pivotal role of setting clear objectives, increasing investments, and easing rules for funding. These measures would help expand the European electronics ecosystem, accelerate R&D results and defray the rising costs of developing cutting-edge solutions key to the growth of emerging industry verticals.A top EU priority in recent years has been to enhance Europe’s position as a world leader in the digital economy. Fulfilling this mission requires an innovative electronics industry in Europe. To this end, FP9 should encourage greater collaboration between large and small companies to leverage their complementary strengths – the dynamism, agility and innovation of smaller companies and the ability of larger companies to mature and scale new product ideas on the strength of their extensive private funding instruments and testing and demonstration facilities.
5) Support high-tech SMEs, entrepreneurship and startups to become globally competitive
European SMEs, the backbone of EU’s manufacturing, are already strong players in the global economy, making outsize contributions to Europe’s innovation. Yet more of Europe’s small and young businesses with limited resources are challenged in Europe’s regulatory labyrinth. Only by improving the European regulatory environment in a way that supports young and small businesses can Europe fulfill its vision of a dynamic electronics ecosystem and digital economy. Access to finance must also be easier, particularly as underinvested startups struggle under a European venture capital apparatus that is smaller and more fragmented than those in North America and Asia. Early-stage funding instruments such as bank loans are essential for young businesses, which often face barriers to finance because banks find the sophistication of their proposed business models difficult to understand and support.
One answer is to better familiarize Europe’s financial sector with industrial SMEs and startups so they can co-develop financial tools that support the growth of small and young businesses. Also, the narrow European definition of SME with staff headcount limited to 250 blocks innovative companies from access to financial tools exclusively provided to SMEs. By contrast, the United States defines SMEs as businesses with as many as 500 employees, placing their EU counterparts at distinct funding disadvantage. EU should ensure that its SME policy is aligned with global trends and industry needs.
6) Create a bigger and more diverse talent pipeline with a hybrid skills set
Europe’s world-class education and research capabilities help supply the electronics industry with skilled workforce. Yet the blistering pace of technology innovation calls for rapidly evolving skills sets, a trend that has led to worker shortages at electronics companies and left the sector fighting to diversify its workforce and strengthen its talent pipeline. The deepening penetration of electronics in AI, IoT, AR/VR, high-performance computing (HPC), cybersecurity and smart verticals is giving rise to a new set of skills that blend production technologies, software and data analytics. As more technologies converge, the gap between university education and business needs continues to widen.
One solution is work-based learning – allowing students to build job skills in a setting related to their career pathway. Encouraging higher female participation in STEM education programs at the high school and university levels is also a must to overcome the traditionally low number of females entering high technology. To build on its reputation as “a place to work” in the eyes of the international job seekers, Europe also needs a more flexible immigration framework to attract skilled labour to high-tech jobs.
Save the Date: Industry leaders, research and government representatives will meet again next year at the ISS Europe organized by SEMI on 28-30 April 2019 in Milan, Italy. More details regarding the event will be published soon on www.semi.org/eu.