Time to build an oasis in the silicon desert

Intel’s investments and the EU’s plans to fund new chips are signs of a dawning realisation that silicon powers the global economy, says Jason Walsh
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Image: Stockfresh

16 March 2022

News that Intel has selected Germany for its new plant was not exactly a shock, and its announcement of a €12 billion investment in its existing Leixlip plant is pretty good as runner-up prizes go, but other recent events should remind us that silicon remains the beating heart of technology.

First there was the coronavirus pandemic, crashing chip supply through lockdowns and supply chain woes. Now, even as the shortage continues, war has again demonstrated control of chips is essential for the functioning of national economies.

The Russian invasion of Ukraine was swiftly followed by sanctions intended to cripple Russia’s economy, and one area where import substitution will not fly is in silicon. Russia does have semiconductor manufacturers, but none that can produce the fast and dense CPUs that much of today’s technology relies on.

 

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The obvious place for Russia to turn will be China, a country that, while still lagging the US, Korea and Taiwan, has been investing heavily in both design and manufacture. Huawei and SMIC are already producing dense wafers, and others, including Alibaba, Tencent, Baidu and Meituan, have all started investing into chip development.

Some estimates suggest Russia will overtake its competitors in both design and manufacturing by 2025. Indeed, the recent Chinese crackdown on tech companies was, fundamentally, about re-orienting the sector away from e-commerce and social media toward deep technology that will give the country a long term competitive advantage.

More broadly, it is becoming obvious that technology is a front in a trade war, if not in conflict per se. Since the locking of Russia out of the Swift payments transfer system, speculation has grown that the country will turn to China’s Cross-Border Interbank Payment System (CIPS). This would aid China because all CIPS transactions are denominated in renminbi, meaning the currency would see a boost in its role in international trade.

Silicon, though, is the most vital piece of the technology puzzle, and while investors have been searching for social media unicorns, chip design, and particularly manufacturing, has been given short shrift.

Faced with all of this, it is worth asking if European Union countries, or even the EU as a whole, need to look again at hardware. Netherlands-based ASML is integral to chip manufacture globally, but it does not itself design or make chips. ARM meanwhile is effectively Japanese-owned and, in any case, its original home country of the UK is now outside the EU.

Infineon and NXP are both EU-based and major international players, but the sector as a whole is worthy of support. Last month’s European Chip Act is a good start, bringing total new EU public investment in the sector to €45 billion, but the continent, its politicians, its investors and, yes, even its tech workers, would do well to think more about the opportunities in deep tech.

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