Can Spain become a solvent player in the global microchip industry? Semiconductors, which are measured in nanometers, are valued in the millions. Meanwhile, the palpable shortage to supply the entire industry continues weighing down economic sectors such as the automotive industry.
“During 2021, the production of vehicles fell by 7.5% and in the first two months it has dropped by 15%,” indicate sources from the Spanish Association of Automobile and Truck Manufacturers (ANFAC) to RTVE.es. The economic information pages these days reflect their uncertainty: Mercedes Vitoria reducing and expanding its production shifts, the Ford Almussafes ERTE workforce, stops in the production of Renault in Castilla y León…
Other handicaps have accumulated in the motor industry, such as the price of energy or the war in Ukraine, but the main obstacle continues to be those tiny silicon plates. A single car contains between 3,000 and 5,000 microchips and dependence is increasing with electric vehicles, as it happens with so many objects in our lives, from mobile phones to vacuum cleaners.
Europe and Spain set their roadmap
After months of storm, from the European Union and Spain have decided to act. The President of the Government, Pedro Sánchez, has announced a Strategic Project for Economic Recovery and Transformation (PERTE) endowed with 11,000 million euros with the intention of promoting the microchip manufacturing in Spain, from public-private collaboration. The actors in the sector consulted by RTVE.es have received the news with applause, which represents a “extraordinary” impulse and fills them with optimism.
“We are going to be able to develop semiconductors to satisfy industry sectors such as the automotive industry, and innovate in new technologies that can be incorporated into the vehicles of the future,” he says. Danny Moreno, president of the Spanish Association of the Semiconductor Industry (AESEMI) and first executive of the Wiyo company, who exhibits the innovative muscle that, he assures, already exists in Spain.
But currently on Spanish soil many chips are designed, but always occur outside. “Most of the companies that we are in do everything except manufacturing. We innovate, design, simulate, test… We only order manufacturing and then we integrate it into our product for the industry”, Moreno details.
Building a plant takes years
The adventure ahead is long and difficult. The reasons are the same that explain the imbalance between supply and demand that has marked 2021: manufacturing semiconductors is expensive and requires very sophisticated technological plants.
“It cannot be done in two, three or four years”, affirms the president of AESEMI about the plans to establish some factories in Spain. According to Moreno, the so-called “clean rooms” where microchips are created and assembled have even higher standards than operating theaters in terms of dust and contamination filtration: “any small particle can spoil what we are doing.”
And for all that to work, the supply chain must be very precise. “We need materials to make chips, silicon wafers, chemicals, metals, pure elements… It also requires very precise instruments, although fortunately, Europe has one of the largest technology companies for chip manufacturing, ASML , which is in the Netherlands”, lists Daniel Granados, a researcher at IMDEA Nanociencia, in an interview on TVE’s Canal 24 Horas.
The shortage problem will persist in the short term
Thus, the solutions on the table serve medium term. “Right now, the production centers are adjusting their production to adapt to the recovery in the pace of microchip manufacturing, but this solution is not expected to be fully reset until early 2023”, recognize ANFAC sources.
Similarly, a Deloitte report predicts that many of the semiconductor shortage problems will remain through 2022, if anything, less deep thanks to the improvements in manufacturing and distribution that are being put in place.
“Increasingly they will be produced in the United States, China, Japan, Singapore, Israel and Europe, a trend known as ‘localization’, which increases chip production closer to the next step in the supply chain”details the consultant.
For this reason, Moreno trusts in a plan that, on the one hand, begins to develop the national industry and, in parallel, attract “industry already established to fill gaps.”
A market in the hands of a few
The growing world market for microchips is currently in the hands of a few. the american Intel is a leader in the entire production process (design, manufacturing and assembly), while the foundry Taiwanese TSMC dominates in the second of those three phases.
The third player, by volume, is Samsung Electronicsfrom South Korea, although you can’t lose sight of the Chinese either SMIC. Like any economic struggle, this one also has a geopolitical aspect and the three international giants have lined up to take advantage of Beijing, which monopolizes a large part of the purchases for its technology industry.
One of the stages of that race is in Europe. The European Union has finally reacted to the supply problems of a strategic product such as semiconductors and aspires to manufacture 20% of the chips produced worldwide in 2030. The European Chip Law was the first step in a trail that Sánchez seems to continue with PERTE.
Given this, in addition to the public disbursement of European funds, companies Intel, TSMC and Samsung have announced investments for factories in community territory, but the American does not expect to be in operation before “the end of 2027”.
Europe’s lagging position in this market is relatively new. In the year 2000, Europe was one of the main producers of semiconductors and it housed nearly 25% of the world’s manufacturing capacity. Currently, production has dropped to 8%. An even more drastic decline has occurred in high-end semiconductor technology, with the market falling from 19% in 2000 to zero today,” consultancy Kearney noted in a report last year.
As it happened with the masks, production was relocated and outsourced to Asian factories, cheaper, during the first decades of the 21st century. The process took with it AT&T’s semiconductor factory in Tres Cantos. Today, a few are left standing in Germany, Switzerland or Austria.
Change of scenery in industrial policy
However, the latest moves by Brussels, the deployment of NextGenerationEU funds and flexibility in spending after the pandemic seem to show a change of mentality in industrial policy in Western governments, although there are nuances.
“When one looks closely at the investment figures, one finds that these pale in terms of percentage of GDP compared to those raised by the other two major world markets, China and the US. Spain, moreover, has taken a relatively moderate stance compared to countries like Italy, which have tried to make the most of available advantageous credits,” political economy analyst Roy Cobby told RTVE.es, acknowledging the influence of a “complicated debt situation”
Thus, Cobby glimpses some problems, such as the development of projects far from the public or the lack of continuity. “Although the PERTE have been designed as instruments with a long-term vision, it is not clear that successive governments will maintain them given the current polarization”, he warns.
Like the employers’ association of automobile manufacturers, ANFAC, the analyst fears that the measures will fall short, although his prescriptions are different.
“Imagine that public support for foreign investment in microchips comes accompanied by counterparts such as, for example, the obligation that the investor transfer certain knowledge to Spanish suppliers so that they can in the future improve their productive capacities”, explains Roy Cobby, on the usefulness of public procurement to improve the competitiveness of a sector such as automobiles.
Sources from ANFAC, for their part, ask for a boost to “charging infrastructures, efficiency of plans to help demand and a positive tax reform for the automobile that meets the dual objective of advancing in decarbonization and achieving recovery”.
The training of professionals, the management and direction of these projects are other challenges to form that productive network that gives impulse to the Spanish industry based on semiconductors.
The sector crosses its fingers. In the words of the IMDEA Nanociencia researcher, Daniel Granados: “11,000 million should be enough, but it is important to bear in mind that there are very few ways to do it right, but many do it wrong. I hope that the Government has a plan and that it is a proposal that will lead us to a successful conclusion.”