As US President Joe Biden prepares to leave office on January 20, 2025, concluding a presidency marked by CHIPS Act initiatives to expand US semiconductor manufacturing, Europe's parallel attempts to expand local semiconductor capacity appear to be losing momentum.
Germany has secured TSMC's investment in the European Semiconductor Manufacturing Company (ESMC), with production expected to begin in 2027. Infineon Technologies and Bosch are also advancing their expansion projects in Dresden. However, Intel's advanced wafer fab in Magdeburg has been stalled for over two years, awaiting key decisions that remain unresolved.
A significant setback lies in the EUR5.7 billion joint wafer fab venture between STMicroelectronics and GlobalFoundries (GF) in France. Announced during the 2022 "Choose France" summit with substantial media attention, the project has reportedly been shelved, according to Bloomberg.
The reasons behind the delay remain unclear. Recent earnings calls from STMicroelectronics and GF have provided little clarity, with no concrete updates, leaving the project's status in limbo and confirmation pending from both companies.
Stalled ambitions in France
The EUR5.7 billion wafer fab project by STMicroelectronics and GF in Crolles, France, has stalled. Unveiled during the July 2022 "Choose France" summit and endorsed by French President Emmanuel Macron, the initiative was envisioned as a key pillar of Europe's semiconductor strategy.
In May 2023, GF announced European Commission approval of subsidies under the European Chips Act to fund a 12-inch wafer fab targeting automotive, industrial, 5G/6G, defense, and aerospace markets. By June, the total project cost was estimated at EUR7.5 billion, supported by France's Bpifrance under the "France 2030" initiative.
Despite these commitments, no progress has been reported in 18 months. Bloomberg indicates the project has been shelved, casting doubt on its future viability.
In October 2023, GF CEO Thomas Caulfield criticized Germany's large subsidies for TSMC, suggesting they hindered GF's subsidy applications for its Dresden expansion. The comments reflect intensifying competition among global semiconductor players for government funding.
By late 2023 and into 2024, STMicroelectronics and GF redirected their focus to China, highlighting the increasing challenges faced by Europe's semiconductor industry.
China market beckons
In October 2024, GF held its annual technology summit in Shanghai, underscoring its strategic focus on the Chinese market. Mike Cadigan, GF's Chief Corporate and Government Affairs Officer, highlighted China's importance, while Kay Chai Ang, the newly appointed President of Asia-Pacific and Chairman of GF China, introduced plans to expand regional operations.
Tim Breen, GF's Chief Operating Officer, told Yicai Global that the company has no intention of building manufacturing facilities or entering basic licensing agreements in China. Instead, GF plans to partner with local manufacturers to improve production quality. Analysts note that GF is targeting Chinese firms with production capacity but limited advanced technologies, alongside exploring partnerships with OEMs and chip design companies.
STMicroelectronics has also deepened its presence in China. In June 2023, CEO Jean-Marc Chery announced a partnership with Sanan Optoelectronics to expand an 8-inch SiC wafer fab. By November 2024, the company established a new collaboration with Hua Hong Semiconductor, emphasizing the competitive advantage of localized manufacturing.
Other European chipmakers, including Infineon Technologies and NXP Semiconductors, have similarly intensified their investments in "Made in China" initiatives by late 2024.
These strategic pivots reflect the challenges European companies face amid the US-China tech rivalry. Despite geopolitical tensions, Chinese orders remain critical for semiconductor manufacturers. Nvidia CEO Jensen Huang captured this dependency in a Financial Times interview, likening the absence of Chinese clients to "a swimming pool in a new fab but no water to swim in."
Underutilized production capacity continues to burden European firms and may partly explain the stalled STMicroelectronics-GF wafer fab project in France. Industry experts have long cautioned that Europe's limited downstream electronics demand is insufficient to support large-scale capacity expansions envisioned by the European Chips Act.
Political headwinds threaten semiconductor plans
Germany and France, the EU's largest economies, are grappling with political and economic challenges that threaten their semiconductor ambitions. The Russia-Ukraine war has disrupted Europe's energy supply, driving costs to record highs. Even if a ceasefire brokered by a potential Trump administration materializes, the conflict's economic toll remains significant.
Germany's reliance on Russian natural gas has hampered economic growth due to supply disruptions. Meanwhile, France faces a fiscal crisis, marked by rising budget deficits, prompting tax hikes and spending cuts to stabilize public finances.
The rise of far-right conservatism in both nations further complicates large-scale industrial projects. Germany's vision of becoming a global semiconductor powerhouse is fading, while France faces the stark realities of its overly ambitious chip plans.
A Trump presidency could exacerbate these hurdles, bringing extra geopolitical and economic uncertainties that further hinder Europe's efforts to regain a competitive edge in the global semiconductor market.