In an interview with Germany’s Handelsblatt newspaper published on Monday, Christophe Fouquet, the newly appointed Chief Executive Officer of ASML, emphasized the critical need for older generation computer chips, particularly within the German automotive industry. His remarks shed light on the current dynamics and challenges faced by chip buyers in Europe and the broader implications of Chinese investments in legacy chip production.
Fouquet, who took over as CEO of Europe’s largest tech firm in April, highlighted the increasing demand for legacy chips, which are manufactured using simpler, well-established technologies. These chips are essential for various industries, with the automotive sector being a significant consumer. “The automotive industry in particular, including the German one, needs a lot more chips that are manufactured using simpler, long-known technologies,” Fouquet stated.
The European Commission has recently begun surveying firms, including ASML, to gather insights on Chinese investments in legacy chips. This initiative underscores the importance of understanding and responding to the shifts in global chip production, especially as Chinese firms ramp up their capacity to produce these essential components.
Chinese chipmakers are expanding their production capabilities to meet the growing demand for legacy chips. This expansion is partly driven by US-led restrictions on more advanced semiconductor technologies, which have compelled Chinese firms to focus on older chip technologies. While this has raised concerns in the West about potential long-term oversupply, Fouquet pointed out that global demand for such chips is increasing dramatically.
“Europe cannot even cover half of its own needs,” Fouquet said, emphasizing the region’s reliance on external sources for these critical components. The profitability of producing legacy chips remains low, which has deterred significant investment from Western firms, further exacerbating the supply-demand gap.
According to estimates by industry group SEMI, Chinese chipmakers are expected to increase their production capacity by 14% by 2025. This growth rate is more than twice the pace of the rest of the world and will result in Chinese firms producing approximately 10.1 million wafers per month by 2025, representing about a third of total global production.
Projected Growth in Chip Production Capacity
| Region | Estimated Capacity Growth by 2025 | Projected Monthly Production (Wafers) |
|---|---|---|
| China | 14% | 10.1 million |
| Rest of World | 6.5% | 5.2 million |
| Global Total | – | 30.3 million |
- Increased Demand: The automotive industry, particularly in Germany, requires a substantial supply of legacy chips.
- Chinese Expansion: Chinese firms are rapidly increasing their capacity to produce legacy chips, driven by restrictions on advanced technologies.
- Western Investment Gap: The profitability of legacy chip production is low, leading to insufficient investment from Western companies.
- Supply Challenges: Europe is currently unable to meet half of its own demand for these chips.
- Global Production Trends: Chinese chipmakers are projected to significantly outpace the rest of the world in increasing production capacity.
Fouquet emphasized the necessity of a balanced approach to chip production and supply. “If someone wants to slow it down, for whatever reason, then alternatives are needed. There is no point in stopping someone from producing something you need,” he remarked. This statement underscores the interconnected nature of global supply chains and the challenges of imposing restrictions without viable alternatives.
The automotive sector’s reliance on legacy chips highlights the critical role these components play in modern manufacturing. As vehicles become increasingly equipped with electronic systems, the demand for reliable and cost-effective chips continues to grow. The German car industry, a major player in the global market, is particularly affected by these supply chain dynamics.
The current landscape of chip production presents both challenges and opportunities. While Chinese firms are poised to dominate the legacy chip market, Western companies and governments must consider strategies to address potential supply chain vulnerabilities. Increased investment in local production, diversification of supply sources, and international cooperation could be key factors in ensuring a stable and sufficient supply of legacy chips.
Fouquet’s insights highlight the pressing need for coordinated efforts to address the demand for legacy chips. As the automotive industry and other sectors continue to rely heavily on these components, the importance of balanced and strategic investment in chip production cannot be overstated. The European Commission’s survey and ongoing industry discussions will play a crucial role in shaping the future of chip supply and ensuring that critical needs are met in a rapidly evolving technological landscape.
Featured Image courtesy of MIT Technology Review