Hidden electronics: But they pack a punch!

They are everywhere and yet remain mostly hidden – microelectronics form the backbone of digitalization, driving automation, artificial intelligence and modern industrial production. Without chips, cars cannot drive, airplanes cannot fly and satellites cannot communicate. Microelectronics can be found deep inside devices, machines and systems. However, in many cases, they only become visible when they are missing, for example in the form of empty production lines, interrupted supply chains or sold-out products. For years, VDE has used the term “hidden electronics” to describe this phenomenon, symbolizing the largely invisible yet indispensable role microelectronics play in our economy and society.

Making their strategic importance visible is also the aim of a series of position papers that VDE has launched together with its specialist societies responsible for microelectronics and information technology, GMM and ITG. The first of these papers, “Hidden Electronics”, was published in 2014. “This was a wake-up call to politicians and industry to recognize microelectronics as a key technology,” recalls GMM Managing Director Dr. Ronald Schnabel. He adds that the paper emphasized at an early stage that, without domestic expertise in the design, production and application of microelectronic systems, it would not be possible to develop sustainable innovative capacity. And even back then, it called for targeted investment and state funding.

This was followed in 2020 by “Hidden Electronics II”, which took stock of the situation in Europe. This paper found that Europe has fallen behind the world leaders in logic and memory production, while massive industrial policy programs are in place in Asia and the USA. In its analysis, the paper called for a European technology strategy and the expansion of domestic production capacities in order to reduce technological dependencies. Finally, “Hidden Electronics III”, published just one year later, specified the requirements and expanded on the previous papers; it identified key application areas such as vehicle computing, edge computing and open source hardware, for example based on the RISC-V architecture. It discussed targeted industrial policy action, as well as a European master plan for microelectronics.

“But there is still no such master plan,” Schnabel says, regretfully. The “European Chips Act”, the EU’s most ambitious funding program for the semiconductor industry to date, was passed in September 2023 with the aim of doubling Europe’s share of global chip production to 20 percent by 2030. However, compared to the programs in the USA and China, the EU chip law lacks central control, financial clout and speed of implementation. While Washington and Beijing enforce their national programs with clear targets and huge amounts of funding, Europe relies on the coordination of many players. “An arduous path in a market that has long been dominated by geopolitical interests,” says Schnabel.

The latest paper, entitled “Hidden Electronics IV”, which was presented at the annual VDE reception in Brussels on September 2, should also be understood against this background. It not only analyzes the current situation of European microelectronics and places it in a geopolitical context, but also formulates concrete recommendations for action for politics, business and research. However, the authors of the paper – led by Prof. Christoph Kutter, Director of the Fraunhofer EMFT and member of the VDE Supervisory Board – are at pains to paint a more nuanced picture, pointing out that, although Europe has lost substantial shares of global semiconductor production over the past 20 years, it still has strategically relevant expertise in some areas. According to the paper, this needs to be strengthened, supplemented in a targeted manner and made effective through better coordinated industrial activity.

The concept of sovereignty is central to this. The authors are not concerned with technological self-sufficiency, but with a balanced degree of interdependence that ensures Europe can remain capable of acting in crisis situations. Kutter sums up the concept in a simple formula: “Sovereignty doesn’t mean we have to do everything ourselves. But we do have to be relevant enough that others need us.” He believes this applies in particular to advanced technology nodes – i.e. state-of-the-art chip structures in the three to five nanometer range – which are currently manufactured almost exclusively in Taiwan, South Korea and the USA. Europe is being left out here. Although the recent arrival of international semiconductor manufacturers is welcome, it’s not enough to significantly reduce the gap.

In addition to production, the paper focuses on the design of chips. This is where it sees the greatest leverage for regaining technological depth. Kutter points out that, in Europe, there are hardly any independent chip design companies that develop their own architectures, hold critical patents and thus set systemically relevant standards. He adds that, much of what is in place, is limited to the internal needs of large companies. He is therefore calling for a new industrial policy understanding of creative power: “Europe must be capable of developing and designing its own key technologies and bringing them into manufacturing partnerships. If you don’t have a presence here, you lose importance not only economically but also politically.” The introduction of open hardware architectures such as RISC-V offers opportunities for new players, but without targeted support, the potential will remain untapped.

It is also clear that microelectronics is no longer a purely economic discipline, but one that is also relevant to security policy. The war in Ukraine has shown how critical chips are for defense systems, communication technologies and industrial resilience. If you don’t have access to specialized electronics, you can’t build modern weapons, operate reliable infrastructure or control crisis-proof systems. The paper therefore calls for the military dimension to be taken into account in funding strategies – not for security policy reasons alone, but as part of technological sovereignty. Kutter also sees shortcomings here: “Europe has concentrated on civilian applications for too long. But modern microelectronics are dual-use. Those who master them can do both: innovation and defense.”

The authors advocate intelligent interaction between research, industry and government. The focus must be on those areas in which Europe is already competitive today or can become competitive again, including power electronics, sensor technology, opto-semiconductors and the production of specialized systems on older but stable technology paths. In these segments, the gap between Europe and the world leaders is manageable, the industrial environment is resilient and the application expertise – for example in the automotive industry or medical technology – is deeply rooted. In particular, “3D packaging,”, i.e. the combination of different chip components to form complex modules, offers new potential for value creation. Instead of opting for risky prestige projects, they believe that Europe should focus on building on its existing strengths.