It is not the first time that the world is facing a major setback in the production of microchips. A similar episode occurred in the 1980s. But, according to analysts, what we are going through now, also thanks to various contingent factors, risks to last for much longer, with heavy economic repercussions on the entire sector of electronic components, starting with the automotive sector, currently, the most affected by this crisis. The most optimistic forecasts say that the crisis will last at least until 2023, but there are those who are already overreaching by saying that it could take up to five or six years before we can batten down the hatches and secure the supply chain. to prevent this deficiency from becoming chronic.

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The microchip crisis: how it started

But how did we get to this point? The economic crisis triggered by the Coronavirus pandemic is just one of the elements of this chain of events. Other factors that have contributed to delineating this picture are the trade war launched by Trump against China. The former president’s aim to limit the supply of US technology by giants such as Huawei, and the particular environmental and geopolitical conditions in the area around the China Sea (the constant threat of China against Taiwan, and the drought that hit the island limiting the water reserves which are paramount to the production of microchips), where almost all of the latest generation microchips are produced, by giants such as Samsung and TSMC (which alone produces 95% of the highest-end microchips). To top it all off, there were erroneous estimates on sales projections, inflated in the case of the automotive sector and underestimated in most other cases, which created problems for operators on more than one occasion. Since European production is limited in both quantity and quality compared to Asian production, we are forced to import most of the chips we consume from Taiwan and China, but obviously, these nations tend to favour their own domestic markets, creating further problems for our companies. Last but not least, the constant increase in the cost of fuel, causes transport prices to increase, and consequently also the prices of the product to skyrocket.

Europe tries to face the crisis

All the major players are seeking for solutions to make sure microchip production can meet the demand for the next few years.

Even Europe, which for years has been plagued by a chronic delay in the sector, recently launched a plan to limit dependence on Asian supplies, with the ambitious goal of returning to the production levels of the 1980s and 1990s, when the Old Continent produced nearly 40% of the world’s microchips. It is estimated that approximately 45 billion euros will be allocated to bring production back to the territories of the Union, 10 will be direct investments and 35 will be shared between private funds and research support. As mentioned earlier, it is Southeast Asia that today produces almost all of the chips. This situation has exposed Europe to millions of losses from bottlenecks caused by the chip shortage in the past two years. An agreement with the American Intel, the only Western chip manufacturer being able to challenge TSMC and Samsung, for the opening of new plants, is not excluded. The States in turn are reorganizing themselves to secure their production, upgrading their plants to produce 5-nanometer chips (a nanometer is one-billionth of a meter) instead of the current 7-nanometer ones. It would be a major leap forward that would enable Intel to withstand Asian technology competition in the near future.

In addition to the promise to open eight new production plants on European soil, Intel has pledged the allocation of one billion dollars to promote the production and marketing chain of the product.

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The Chips Act

The EU Chips Act, which was officially announced on February 8, will move in three different directions: to begin with, the resources of the Union, member states, associated third countries and private sector will be gathered and pooled, and 11 billion will be available for research, development and innovation. This will seek to promote the creation of next-generation semiconductors, pilot lines to prototype, test and experiment with new devices, train staff and develop a thorough understanding of the semiconductor ecosystem and the entire production chain.

Secondly, the aim will be to develop a scheme to guarantee the security of supplies, which will serve to attract new investments and strengthen the production capacities of companies. The Chip fund should allow easy access to finance for startups, so as to support them in the development of innovative projects and attract new investors. The fund will also include a financial instrument dedicated to equity investments under the InvestEu program, to help scale ups and small and medium-sized enterprises expand in the market.

Finally, the new regulatory framework provides for the establishment of a coordination mechanism between member countries and the Commission to monitor the supply of semiconductors, assess demand and prevent possible shortages.

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On the other side of the Atlantic, the creation of ten new plants and financing for 52 billion dollars is planned, with the hope of bringing them, thanks to private funds and incentives, to over 150 billion for the creation of the plants. Private actors have already started the construction of four new plants, three in Arizona (one by Tsmc and two by Intel, for 20 billion dollars) and one in Texas (Samsung).