• European Commission President Ursula von der Leyen has announced a new European Chips Act.
  • 'We need to radically raise Europe's game on the development, production and use of this key technology,' she told The Davos Agenda.
  • The act will enable progress in 5 key areas.

European Commission President Ursula von der Leyen has announced a new European Chips Act in a Special Address at The Davos Agenda.

The act, which will be proposed in early February, aims to increase microchip production across the continent in response to rising demand and to reduce dependency on suppliers from outside Europe.

"The European need for chips will double in the next decade," von der Leyen explained. "This is why we need to radically raise Europe's game on the development, production and use of this key technology."

Progress in 5 key areas

Europe's global semiconductor market share is only 10% today, President von der Leyen explained. Most supplies come from a handful of producers outside the continent, she said.

"By 2030, 20% of the world's microchips production should be in Europe," von der Leyen said. "Keep in mind that the world's production itself will double. This means quadrupling today's European production."

And this new act will enable progress in 5 key areas, she explained:

1. Strengthened research and innovation capacity in Europe

2. Ensure European leadership in design and manufacturing

3. Adaption of state aid rules to allow public support - for the first time - for European, first-of-a-kind production facilities.

4. Improved ability to anticipate and respond to shortages and supply issues in the area

5. Support for smaller, innovative companies.

Euro area semiconducter imports
A look at imports.
Image: European Central Bank

The global chip market

The majority of Europe's microchip supply coming from outside the continent is a "dependency and uncertainty we simply cannot afford," von der Leyen explained.

The global microchip - or semiconductor market - has been thrown into the spotlight in recent months, with shortages affecting the manufacture of reliant products across the globe.

Supply has struggled to keep up with demand, especially as the pandemic has increased the need for high-tech products needed to enable remote working. But responding takes time, David Yoffie, a professor at Harvard Business School, told Wired.

“It takes about two years to build a new factory,” Yoffie said. “And factories have gotten a lot bigger, a lot more expensive, and a lot more complicated too.”

Supply chain issues have also compounded production challenges, with the cost of shipping products around the world rising sharply since the beginning of the COVID-19 pandemic.

And the situation is unlikely to be resolved quickly - Intel warned last July that shortages could last for a 'year or two'.

This, it seems, is Europe's response.