The European semiconductor industry: Turning setbacks into opportunities

This setback underscores the urgency of strengthening and securing Europe’s position in the global technology landscape. As CEO of the Electronics business sector of Merck KGaA, Darmstadt, Germany, I believe this development presents both challenges and enormous opportunities for our continent. In this article, I would like to shed some light on the perspectives for the European semiconductor industry and highlight eight key areas for action that will guide us toward a competitive future.

1. Strengthening global spheres of influence through strategic positioning

Europe must focus on expanding global key positions in the AI and semiconductor value chain. Rather than complete autonomy, we should strive for strategic sovereignty. This means further developing our strengths in areas such as EUV lithography, materials science and industrial AI. Companies including ASML, ZEISS and TRUMPF already impressively demonstrate how European expertise is in demand worldwide. 

To strengthen this position, we need to invest strategically in research and development while also integrating global players into our core competencies with targeted incentives. We should prioritize the establishment of high-quality R&D, design and product development activities. Examples such as Apple’s Silicon Design Centre and Google’s cloud hubs in Europe demonstrate how global technology corporations can solidify their core IP competencies here.

2. Building generative AI-focused innovation ecosystems

The future lies in strongly networked innovation clusters that selectively support and build up economically viable manufacturing capacities for strategically relevant technologies. These clusters are meant to serve as catalysts and pillars for future-proof European technology ecosystems. 

Public investments should focus on “innovation pillars” – factories and facilities that bring strategic new capabilities to European industry. One such example is the TSMC-led ESMC fab in Dresden, which is bringing FinFET technology to Europe. This highlights the importance of considering the entire value chain – the supply of crucial raw materials, the integration of the regional supply industry and, finally, agile software development.

3. Securing AI and semiconductor supply chains through strategic reciprocity

Europe should avoid protectionist reflexes and instead use its technological strengths strategically as leverage in international collaboration. It is crucial to position ourselves as a strategic partner in a mutually dependent global network rather than as an isolated producer. 

Our strengths in areas such as lithography, materials science and industrial IP could benefit us in “technology-for-access” agreements with other regions when it comes to ensuring access to generative AI-relevant capacities. Additionally, we should further explore and expand strategic partnerships, for example with Japan.

4. Reducing bureaucracy and simplifying regulations

The cumulative burden of navigating the regulatory jungle, especially the many different funding mechanisms and their regulations such as the AI Act, the Chips Act and the Cyber Resilience Act, is particularly challenging for innovative SMEs. Effectively reducing reporting requirements and bureaucracy across the EU and establishing a healthy balance between regulation and innovation is both essential and urgent. 

The European single market comprises 450 million consumers and 26 million companies and is the world’s second-largest global market, accounting for around 18% of the global economy. To exploit Europe’s full innovation and market potential, it needs to be strengthened through harmonization, intelligent deregulation and faster processes. For innovation-driven startups and SMEs, regulatory requirements should be moved to later growth phases and compliance processes should be simplified centrally.

5. Initiating a talent strategy for deep tech at the AI-semiconductor interface

Europe already has outstanding talent and excellent universities. However, many of these talented people leave because they do not see enough commercial opportunities for themselves. To reverse this trend, it is necessary to not only train talent but also create attractive career opportunities in Europe. 

To improve the talent situation, we need to replace the rigid EU Blue Card with flexible, competitive visa regulations. A pan-European deep tech talent initiative could provide targeted training to specialists at the interface of AI and chips by providing micro-credentials, joint industry-university programs and high-caliber fellowships. Additionally, AI and semiconductor technologies should be bolstered as part of promoting STEM in schools and universities. At the same time, we must build an ecosystem that promotes innovative startups and scale-ups in the AI and semiconductor sectors in order to offer attractive career prospects in Europe.

6. Unifying semiconductor, AI, and industrial policy

The current European policy architecture is fragmented, with isolated laws and separate funding programs. We need to coordinate individual measures strategically under the common goal of securing Europe’s leading role in generative AI-relevant technologies. 

It is important to understand that AI and semiconductors are interconnected. They form a mutually reinforcing cycle with advances in AI driving the development of more powerful chips, while improved semiconductor technologies in turn enable new AI applications. This synergy must be reflected in our policies. 

We should launch mission-driven flagship initiatives that connect AI, hardware and industry needs in areas such as sustainable data centers, automotive AI chips and secure industrial infrastructures. At the same time, it is important to rigorously examine new legislative initiatives for innovation friendliness, especially as regards the impact on startups and SMEs.

7. Driving strategic data ecosystems

The success of innovation along the symbiotically connected AI and semiconductor value chain depends heavily on high-quality, interoperable and protected data. Europe needs to make targeted investments in strategic data ecosystems and create corresponding regulatory frameworks.

This includes building secure, reliable platforms for effective data exchange with clear governance and a legal framework. We need to promote interoperable data formats, standardized access models and AI-capable data infrastructures. Moreover, EU-wide digital standards for testing, certification and sustainability assessment are required to prevent regulatory fragmentation.

8. Consolidating demand

A final crucial aspect is the consolidation of demand. To build a robust semiconductor infrastructure in Europe, we need several strong demand centers covering various industries and application areas, including the automotive industry, telecommunications, Industry 4.0, and healthcare. 

By pooling demand, we can achieve the critical mass required to justify investments in research, development and production. Alongside improving the economic viability of semiconductor production in Europe, this would promote the development of specialized chips for key European industries.

Conclusion

Despite the setback caused by Intel’s decision, Europe has the technological excellence, industrial depth and innovative power to play a key role in shaping the AI age. Companies such as ASML, Merck KGaA, Darmstadt, Germany and Siemens are already pioneers in the European semiconductor industry, showing that we can compete at the highest level. 

What we need now is a networked, strategic approach that builds on existing strengths, removes systemic obstacles and solidifies Europe’s position in the global technology market. A key factor in this will be systematic and data-driven collaboration along the entire value chain – from cutting-edge research to manufacturing and application. 

Technology leaders in Germany and Europe have the necessary expertise, dynamism and responsibility. We stand ready to support Europe along this path to actively shaping technological sovereignty now and in the future – a future in which Europe leads in the development and application of key technologies for the AI age.