INDUSTRY POLICY Dutch equipment sector important in EU battle for world hegemony in semicon

DUTCH EQUIPMENT SECTOR IMPORTANT IN EU BATTLE FOR WORLD HEGEMONY IN SEMICON

‘WE WILL REALLY HAVE TO FIGHT TO STRENGTHEN OUR POSITION’

Following the US, the EU has now also proposed a Chips Act. The aim is to bring a bigger slice of the crucial semicon pie to the continent. In Europe, the billions of euros in subsidies will end up with a limited number of companies and institutes in just a few countries. Naturally the Netherlands is one of them, given its strong equipment sector led by ASML. But it is important that the focus is on the complete value chain, including the chip fabs. ‘Europe will really have to fight to strengthen its position, by going back to doing more itself. ’

A TENTH OF WHAT IS NEEDED

Semicon markets by region in billions of dollars (Gartner, ASML, April 2021)

BY MARTIN VAN ZAALEN

Despite the war in the Ukraine and the resulting global political tensions demanding all of his attention, President Joe Biden did manage to attend a meeting with the leaders of the US semiconductor industry in mid-March. Which demonstrates the enormous importance the country attaches to strengthening this sector, ‘ of fundamental importance for the US economy and for a range of production sectors in the US’ . On the agenda was the CHIPS for America Act, a piece of legislation that aims to strengthen the semiconductor industry. In June of last year, the Senate released $39 billion for building chip fabs and $11.2 billion for R&D activities around semiconductors. The participants at the semicon summit wanted to know when the relevant subsidies, tax breaks and research funding would be available.

EU CHIPS ACT

The realisation has also dawned on politicians in Europe that a substantial slice of the semiconductor industry needs to be assured within the EU as quickly as possible. Whereas the Americans complain about the fact that semiconductor production capacity in the US has fallen from 37% in 1990 to 12% today, the European share of the semicon global market has fallen further, from 20% in 1990 to 8% now. The European Semiconductor Industry Association, by the way, keeps it at 9.4% now, barely less than the 10.1% share that the EU had 1995, according to ESIA. Remains that it is a meager share. So the EU has drafted its own Chips Act, which it launched in February, to restore that share to 20% by 2030. With a raft of measures, the European act aims to free up €43 billion in public and private funding in order to enhance the ‘technological leader-ship ’ of the European semicon sector and prevent future shortages of chips.

As far as Bram Nauta is concerned, that €43 billion, spread over 10 years, is only a tenth of what is needed in order to get market share back up to 20%. Because over that period, the market will double. And €43 billion is roughly the amount China spends on its semiconductor sector annually. ‘So at best, the extra money will be enough to keep the share at the current 8%. ’ But the professor of IC Design at Twente University says he does understand that pumping €430 billion of tax money into a sector that has been making big profits for many years is not realistic. ‘So those billions of euros of public money need to be used primarily for tomorrow ’ s semicon. That means training enough people – especially in IC design, because there is a real shortage of specialists in that field – and research into new IC technology. The money needs to be spent in such a way that it boosts the profits of companies in the sector, which they then reinvest in their activities in Europe. That way, you could achieve a lot. ’

GERMANY

The Chips Act aims to build on the existing world-class European semicon sector, made up of R&D organisations and networks, chip fabrication plants, equipment manufacturers and specialist suppliers. The European semiconductor ecosystem is concentrated in a limited number of countries. Leuven in Belgium is home to IMEC, generally regarded as the most important research institute for this sector, alongside the Laboratory of Electronics and Information Technology (LETI) in France and the Fraunhofer Institute in Germany. Infineon and Robert Bosch have major chip manufacturing facilities in

Dresden in Germany, while an important equipment manufacturer is Sentech Instruments in Berlin. Additionally, major suppliers of the equipment manufacturers, such as Trumpf and Carl Zeiss SMT, are located in southern Germany.

GROWING FOOTPRINT

French-Italian chip manufacturer STMicroelectronics is headquartered on the other side of the border, in Switzerland. An important British semicon company is ARM, which focuses on the design and development of computer processors, memory controllers, graphic processors and storage devices. Austria is home to front-end equipment manufacturer IMS Nanofabrication and ams OSRAM, manufacturer of a range of sensors for sectors including automotive and medtech. Ams also has a major facility in Italy. Italy is also home to LPE, which produces components for power electronics applications. This semicon footprint is growing. Infineon has invested €1.6 billion in a new plant in Austria. Bosch is investing a quarter of a billion in a new wafer fab in Germany. The investment announced by Intel in mid-March takes things to the next level: up to €80 billion in various EU countries, throughout the semiconductor value chain, including an advanced mega factory for semiconductors in Germany and a new R&D and design hub in France.

NETHERLANDS: COMPLETE VALUE CHAIN

And then of course there is the Netherlands. The Netherlands is regarded as being one of only a few countries in the world, along with the likes of the U.S. and Japan, to have a relatively complete semiconductor industry value chain within its borders. This includes applied research, chip design, chip architecture, the production of chips, the equipment required to make them, plus system integration and applications. With regard to chip design and architecture, the Netherlands is home to several innovative businesses, including the multinational semiconductor manufacturer NXP Semiconductors. Headquartered in Eindhoven, the company generated more than $11 billion (2021) in the automotive and the industrial and internet of things (IoT) applications market. The company is also strong in the communication infrastructure and mobile markets.

ASML AND SUPPLY BASE

The Netherlands is also home to several companies that provide equipment to the semiconductor manufacturing industry, including ASML in Eindhoven, generally acknowledged to be Europe ’ s most important semiconductor company. It builds the EUV chip machine which TSMC and Samsung use to manufacture the most advanced chips in Asia. In addition, Besi Semiconductors is headquartered in Duiven and ASM International in Almere – two other equipment manufacturers whose turnover runs to billions of euros. Trumpf and Carl Zeiss are part of ASML’ s supply base, as are a large number of Dutch firms, including VDL ETG, NTS and Prodrive as first-line suppliers and Hittech, BKL, ERIKS and VHE as second-line suppliers – all firms that meet the highest global standards in terms of accuracy and cleanliness.

SEMICON HUB ISRAEL: JUST OUTSIDE EUROPE, BUT MUCH CLOSER TO THE US

Taking a step back and looking at the European semicon hubs, you notice that a lot of activity in chip and chip equipment production is also concentrated just outside the continent, in Israel – with strong connections with firms in the US in particular, but far fewer with those in the European hubs. For instance, Intel has a big foundry in the south of the country. It is situated there, says Kobi Kurtz, director of Kurtz Marketing & Management, due to the reliability and high level of education of staff, but also because of wage costs. In that part of the country, they are substantially lower than in Tel Aviv, 50 km to the north. Another reason why Intel is located there is because it also has a site in the north, close to Haifa and the technical university Technion, that specialises in designing chips and chip architecture. ‘This is where the origins of Intel’s presence in Israel lie’ , explains Kurtz. ‘The story goes that Dov Frohman, born in Amsterdam by the way, personally brought Intel to Israel for part of its chip production. Frohman is the inventor of EPROM (erasable programmable read only memory – ed.). This technology was the precursor to flash memory and was of huge commercial value to Intel. Which is why the Americans felt it was fair to locate some of their production activities in Israel. ’ Intel’s presence in Israel has recently grown further with the acquisition – for $45.4 billion – of Tower Semiconductors, a fab specialising in the production of chips for specific applications, likewise located in the north of the country. Also situated in Israel are equipment developers and constructors, at the front-end of the semicon chain. An important name is Applied Materials, which has its biggest R&D site outside of the US in Israel and develops and builds metrology and inspection equipment there. Another company in this semicon segment is Nova Instruments, based just to the south-east of Tel Aviv, close to the

Kobi Kurtz, director of Kurtz Marketing & Management. Photo: KMM

renowned Weizmann Institute of Science. In 2019, the American semicon company KLA acquired Orbotech, which is based to the south of Tel Aviv and specialises in equipment for inspecting PCBs and flat panel displays, says Kurtz. The examples cited by Kurtz reveal intensive collaboration with the American semicon industry. But he points out that there is also some collaboration with the European chip industry. For instance, Orbotech has been working with Holst Centre for years. ItoM (an Eindhoven agency specialising in designing RF CMOS transceivers for IoT applications) has ‘a lot of customers in Israel’ . In order to encourage new partnerships, Kurtz and his agency (based in Rotterdam and with a rich network in Israel) organises annual visits to Israel for entrepreneurs in partnership with the BOM development company. One of those trips took place in the second half of March, with participants including Smart Photonics, Prodrive, Louwers Hanique and ItoM. ‘All firms which are interested in the Israeli semicon market. Previous trips have generated a lot of business for the participants. ’

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‘DOING MORE OURSELVES’

Given all the strengths already present in Europe, Bram Nauta believes the opportunities lie in manufacturing chips for sensors and actuators for automotive and the Internet of Things and RF chips for wireless communication. In addition, Europe will need to invest heavily in ‘the big system of CMOS chips with a lot of processing power and embedded memory, for example ’ . ‘We currently don ’t make them in Europe at all. That market is primarily in the hands of US companies like AMD, Intel and Qualcomm who manufacture them in their Asian factories. Europe needs to start doing the production of that type of IC itself. We could then integrate RF chips and the sensor electronics in them to produce complete CMOS modules. Because suppose the Americans decided to start producing and integrating their RF chips and sensors

themselves, we would then lose that market too. We will really have to fight to strengthen our position, by going back to doing more ourselves again. ’

FABS ARE MORE CRUCIAL

He believes that strengthening the semicon equipment segment alone is not enough – the fabs are more crucial. ‘With ASML, ASMI and Besi, this segment is particularly well represented in the Netherlands. But that doesn ’t make Europe any less dependent on the chip manufacturers in Asia. China is going to invade Taiwan. It’ s going to happen –sooner or later, an invasion is coming. China is keeping quiet about Russia so that in future Russia will keep quiet about China. In that scenario, if Europe imposes sanctions, China could withhold TSMC’ s chips from us. What will we do then – go back to pen and paper? Yes, Asia is currently dependent on the equipment manufacturers here, but China is investing heavily in its own wafer stepper. In ten years ’ time, they ’ll have their own ASML. ’

IPCEI

Because the European Chips Act is based on public-private partnership, in which both government and business invest money, it makes sense that much of that money will go to the big players in these European hubs.

And thanks to the Important Project of Common European Interest (IPCEI) on Microelectronics and Communication Technologies scheme, it is possible to bring together knowledge, partners and money around pre-competitive themes in micro-electronics without falling foul of rules on state support and competition. An IPCEI is an integrated European project consisting of multiple national projects set up by companies and/or research institutes in various EU member countries that complement one another, have synergy and demonstrably contribute to the EU’ s goals. An IPCEI project must have a significant impact on the EU’ s competitive position, on sustainable growth, on tackling societal challenges or on value creation throughout the Union.

€218 MILLION

The specific goal of IPCEI Microelectronics 2 is to strengthen the European electronics industry by means of an advanced design ecosystem, innovation in the value chain via research and development, expansion of European manufacturing capacity and initial industrial applications for high-value semiconductors and related technologies. The Dutch government has provisionally earmarked €218.5 million as a starting budget for projects submitted for IPCEI ME2 by Dutch industry and research institutes. Over the past ‘WE WILL FIGHT TO REALLY HAVE TO STRENGTHEN months, the Ministry Economic Affairs and Climate Policy has of OUR POSITION, BY GOING selected a small number BACK TO DOING MORE of the submitted OURSELVES AGAIN’ proposals to Brussel and s for sent them a further selection round over the coming months, when the final choice will be made. Which national proposals have been forwarded and why has not been made public. At the time of going to press, Link was not able to establish the backgrounds of those in The Hague and Brussels who evaluate the proposals for ‘technical excellence ’ , relevance for the market and ‘ proportionality of the requested funding ’ .

‘NO DOUBT NXP AND ASML’

Bram Nauta and his group did not submit an IPCEI ME2 proposal. ‘I didn ’t know anything about it. I imagine it was deliberately kept quiet. Which national projects will be proposed in Brussels? No doubt they will be the proposals from the two biggest semiconductor companies in the Netherlands: NXP and ASML. I don ’t have a problem with that. I’ m sure a lot of the money will find its way to our projects, into research and training people. In order to keep up, the Dutch semicon sector needs four times the number of specialists it currently has. We train them here. ’

Bram Nauta believes that chip fabs are crucial for Europe because: ‘China is keeping quiet about Russia so that in future Russia will keep quiet about China. If Europe imposes sanctions, China could withhold TSMC’s chips from us. What will we do then – go back to pen and paper?’ Photo: UT • • • • www.congress.gov digital-strategy.ec.europa.eu www.utwente.nl www.rvo.nl/subsidie-en-financieringswijzer

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