Recently, various opinions have suggested that the European semiconductor market is currently in decline, and the outlook is not optimistic.
Europe may have entered this downturn a year later than other regions, with market research firm Future Horizons projecting only an 8% growth for the European semiconductor market in 2025.
At present, the automotive and industrial markets in Europe have already begun to show negative growth. Specifically, optoelectronics and discrete components are underperforming, the MCU market is shrinking and experiencing negative growth, and the analog market has faced 17 consecutive months of decline. These signs have raised concerns about potential inventory surpluses in early 2025.
Investment in Europe’s semiconductor sector appears to be marked by “loud thunder but little rain,” with many policies in place but minimal results. What is happening to Europe’s semiconductors?
01
The “Foundation” of European Semiconductors
Objectively speaking, the European semiconductor industry is not “weak.” Several European companies feature among the top 25 global semiconductor manufacturers in 2023.
Germany’s Infineon is a leader in power semiconductors and energy efficiency solutions, with expertise in power electronics covering automotive, industrial, and renewable energy applications. In 2023, Infineon’s revenue reached €16.309 billion, a 15% increase year-on-year.
Switzerland’s STMicroelectronics offers a wide range of semiconductor solutions across automotive, industrial, and Internet of Things (IoT) applications, with a 7% revenue growth in 2023, totaling $17.2 billion.
Netherlands-based NXP Semiconductors also leads in automotive semiconductors, playing a significant role as a key provider of secure connectivity and embedded processing solutions in the rapidly evolving automotive sector, achieving revenue of $13.28 billion in 2023.
It is evident that European semiconductor companies hold a significant advantage in the automotive market, with these three traditional giants being leaders in their fields. Additionally, European firms have a certain degree of “say” in the upstream semiconductor industry. Morgan Stanley has identified three “promising” European semiconductor equipment companies.
Switzerland’s VAT Group produces vacuum valves for chip manufacturing. From January 2023 to September 2024, VAT’s stock price has increased by 42%, as the semiconductor equipment market expands, leading to business growth for VAT.
Dutch company ASML manufactures lithography machines essential for semiconductor production, monopolizing extreme ultraviolet (EUV) lithography technology and being the sole supplier of large-scale EUV lithography machines, crucial for producing smaller and more powerful semiconductor components.
ASM International, another Dutch company, also produces lithography equipment. In the past 12 months, ASM International’s stock price has risen by 68%. Its thin-film deposition tools are vital for manufacturing cutting-edge logic and memory chips used in artificial intelligence infrastructure. Morgan Stanley’s Nigel Van Putten predicts that as the semiconductor industry adopts the next-generation Gate-All-Around chip architecture, ASMI will become a major beneficiary, with growth expected to outpace the overall chip equipment market in the coming years.
02
What is Wrong with European Semiconductors?
Despite some accumulation in the automotive market, Europe seems to have missed the opportunity presented in 2024. The region’s performance in the data center and artificial intelligence server markets is relatively weak. Currently, these markets are predominantly centered in the U.S. and China, which have high demands for memory chips and high-performance processors that can support the global chip market.
However, demand for such applications in Europe is not robust, as the region continues to rely on traditional industrial and automotive applications. Unfortunately, the automotive and industrial markets in Europe performed poorly in 2023, leading to an oversupply of related chip products, negatively impacting the revenue of European chip component suppliers.
Infineon, one of the “big three” European semiconductor companies, has lowered its revenue forecast for fiscal 2024 from €16.5–17.5 billion to €15.5–16.5 billion, expecting particularly tough conditions in the second quarter. STMicroelectronics also issued a pessimistic outlook, noting stable automotive demand but no significant growth in consumer electronics, and further deterioration in industrial product demand; Norway’s Nordic Semiconductor ASA reported guidance below market expectations earlier this year; semiconductor equipment encoder manufacturer Renishaw Plc observed continued weakness in the industrial control sector.
According to statistics from the German distribution trade organization FBDi, revenue among registered distributors fell by 20.1% in the fourth quarter of 2023, with a 56% decline in orders, resulting in an order-to-shipment ratio of 0.47, indicating a challenging market outlook for the coming quarters.
In addition to missing opportunities in the local market, U.S. bans have severely impacted the European semiconductor market. The U.S. has imposed comprehensive restrictions on the import of high-end chips by Chinese companies and has blocked European and Japanese exports of chip equipment to China. These restrictions have placed ASML in a dilemma, as it cannot ship EUV lithography machines to China, which is the world’s largest chip market and one of ASML’s most important customers.
U.S. policies have created tension and chaos in the global chip supply chain, leading to rising chip prices and supply shortages. For European semiconductor manufacturers, this means facing higher costs for raw materials and equipment procurement while exploring new markets; at the same time, they contend with price competition and market share disputes from Chinese and other regional manufacturers, as the U.S. restrictions were not designed for European firms.
The European semiconductor industry has long been aware of this situation and has aimed to enhance the competitiveness of local companies through relevant policies. In fact, since 2022, the EU has proposed the European Chip Act to avoid falling behind in the global semiconductor competition. However, this once-promising European Chip Act now faces a crisis of “unfeasibility.”
03
From 1.0 to 2.0, Europe’s Semiconductor Policy Remains at Square One
In February 2022, the EU proposed the European Chip Act, which was officially approved by the European Parliament and the European Council in July 2023 and came into effect in September 2023. This act is expected to inject over €43 billion into the semiconductor industry, including direct public funding and private investments attracted through incentives.
As a significant outcome of this act, the EU has agreed to subsidize TSMC’s €10 billion factory project in Germany and Intel’s planned project in Germany.
After the EU Commission approved €5 billion in aid, TSMC began construction of its semiconductor plant in Dresden, Germany, in August 2024, which will become an important supplier for the European automotive industry. TSMC plans to invest €3.5 billion in this project, holding 70% of the plant’s shares, with the remaining 30% split equally among NXP, Infineon, and Bosch.
However, Intel’s project appears to have stalled. Recently, Intel officially announced a roughly two-year pause on its advanced packaging factory project in Poland and its wafer fab construction project in Germany. A recent report from the German technology policy think tank Interface indicated that the EU’s 2030 semiconductor targets have become “inaccessible.”
The European Chip Act aims to increase Europe’s global semiconductor production market share to at least 20% by 2030. In response to this target, ASML’s former CEO Peter Wennink stated that, given the current investment levels and the challenges of significantly increasing capacity within the set timeframe, the targets set by the act are “completely unrealistic.”
As a result, the Chip Act 2.0 has emerged. In September 2024, the European Semiconductor Industry Association (ESIA) urged the new EU leadership to expedite the introduction of “Chip Act 2.0” support policies, focusing on incentives and cooperation, accelerating subsidy disbursements, and adopting open trade policies to balance economic security with market demand.
ESIA emphasized that “industrial competitiveness” should be prioritized, urging the quick release of subsidy funds and proposing the establishment of a dedicated “Chip Envoy” role to coordinate and unify cross-sectoral industrial policies, ensuring coherence and effectiveness of policies, and advocating for deeper integration of the semiconductor industry into the decision-making process of the European Semiconductor Committee to enhance policy relevance to the industry.
Regarding trade policies, ESIA highlighted the global nature of the semiconductor industry, calling for the EU to adopt an “open trade” strategy to maintain high levels of supply chain openness and flexibility. ESIA believes that the European domestic market alone cannot sustain large-scale commercial cases, such as achieving sales volumes of hundreds of millions of high-quality components. Therefore, protecting economic security should not rely solely on defensive restrictive measures but should instead employ supportive and incentivizing approaches to promote healthy industry growth. Concerning export controls, ESIA advocates maintaining the original intent of contributing to international peace and security, avoiding excessive interference in the normal functioning of the market.
Some external factors, such as pressure from the U.S. government, can impact Europe’s semiconductor export policies. Therefore, ESIA urges the EU to consider core interests of national and European companies cautiously in decision-making. ESIA suggests establishing a structured mechanism to permanently involve the industry in these discussions, such as creating an official body to coordinate export controls and allowing the semiconductor industry to serve as a permanent advisory role. Furthermore, this document calls on the EU to avoid restricting the industry’s access to certain specialized chemicals and materials and to strengthen training for talent shortages in the sector.
04
Conclusion
European chip manufacturers argue that a profitable business case may begin with the sale of 500 million high-quality components, which the European market alone cannot provide at such a scale.
This perspective indicates that the biggest issue facing European semiconductors is the lack of a sufficient market. Due to various influencing factors, European semiconductor companies are increasingly “distant” from their customers, with deteriorating relationships.
As the European Semiconductor Industry Association asserts, “A more proactive approach is needed for economic security, based on support and incentives rather than relying on restrictive and protective defensive measures.”
The initial goal of export controls was to contribute to international peace and security, not to harm oneself while benefiting others.
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