semiconductor industry

More Chips, Please

  • Why it matters

    Why it matters

    Unlike China and the United States, Europe does not do enough to support the semiconductor industry, Handelsblatt’s author argues.

  • Facts

    Facts

    • On Tuesday, X-Fab, a chip-making foundry, announced plans for an IPO to fund its expansion.
    • X-Fab’s wafers are used in chips for car dashboards, smartphones and medical technology.
    • The governments of South Korea, Taiwan and the United States all provide more support for the semiconductor industry than many European governments.
  • Audio

    Audio

  • Pdf
Neuer Reinraumkomplex bei X-FAB
Europe needs a double portion of innovative companies like X-Fab. Source: DPA [M]

It isn’t news to anybody that semiconductors are indispensable. Without them, no car would start, no plane take off, they are even critical to coffee machines.

And yet for years the political establishment in Germany and Europe has taken, at best, a half-hearted interest in the chip industry.

In the United States, huge factories have been built with government support, and South Korea and Taiwan do even more to help the industry. Corporations there have built up major development departments.

In Europe, it is nothing short of a miracle that a few leading semiconductor producers like Infineon, NXP and ST Microelectronics have survived at all.

Should the flotation succeed, it might be an incentive for other chip companies to expand.

Such corporations, worth billions of euros, will manage to keep pace with international competition in the future. But big players alone are not enough. If Germany and Europe want to be competitive in this field, they also need smaller, more flexible chip companies.

X-Fab is a medium-sized contract manufacturer that has announced plans for an IPO. Most people unfamiliar with the industry probably have never heard of the company based in Erfurt, in the central German state of Thuringia. And yet the company provides an important function. X-Fab makes chips in six plants for rivals who can’t afford their own factories or don’t want one. Such foundries can also produce chips cheaply in smaller numbers and many branches of European industry, from medical technology and automotive suppliers, benefit from this.

X-Fab has built up a sustainable business model on its own resources. But Europe needs many more innovative chip companies like X-Fab. Semiconductors play a key role in such things as autonomous driving, just as in electric cars. Governments should provide more support to innovative semiconductor businesses in Europe, instead of shielding the economy from structural change as it too often does.

The United States has recently underlined that the semiconductor industry is vital to its interests. Twice recently, U.S. authorities stopped acquisitions by German firms. What’s more, Qualcomm is now in the process of swallowing NXP, Europe’s largest chip producer. China, in turn, is planning to pump more than $100 billion into the industry over the next couple of years.

Measured against that, X-Fab’s €250 million IPO is just play money. Nevertheless, should the flotation succeed, it might be an incentive for other chip companies to expand. That would be a blessing for the whole of the European economy.

 

To contact the author: hofer@handelsblatt.com

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