This makes perfect sense and it should have been the case already if it were not for short term "nationalistic" tendencies within the European community. Let's hope that the current crisis will push for a European chip super company (among other consolidations). I say this more in hope than expectation though....
These strategic, often government-sponsored decisions are a difficult proposition. Sometimes they can succeed, e.g. when the playing field is more or less level, as is the case of Airbus vs Boeing. Sometimes, like this instance, it might be more of a risk. You're going up against super low cost manufacturing in China.
I don't think this is a slam dunk. The worst case scenario being, even with governments going further in debt than they already are, the costs might still favor the Chinese sources.
I am not sure this is true. Germany proved that it is possible to compete and win in the car industry through a mixture of labour reforms, strategic and stable management, diversification of risk, and constant improvements/innovation. I believe the same principles could be applied to the semiconductor industry despite ferocious competition from the far east. Europe has to use its economies of scale to ensure a large market for its indigenous industries.
I agree with Bert22306, and besides China I would also add USA (Intel) and Korea (Samsung) as real world-wide competition that both perpetually stay in the "paranoid competition" mode for silicon. The Airbus vs. Boeing analogy is looking backwards...good historical info but not "shooting ahead of the year 20xx silicon puck". Intel and Samsung do not compete like Boeing.
some commercial success - producing half the world's airlines! Understatement indeed. The debt crisis has politicians focusing on the next vote, which means numbers. There are more dumb people than smart people, so why would the majority vote for jobs for a few smart people? Nokia is shedding 40,000 jobs since 2010. The people smart enough for a smart chip don't rely on handouts or welfare, so if Europe cannot deliver, they go elsewhere. The unemployed remain. Funding is unlikely.
Folks, national European companies are failing partly because they are relatively small and scattered. If they pool their market potential, they would be a major international force. I find the EADS analogy pertinent. On their own, defence and aerospace companies in Europe were no match for their US counterparts. When a political decision was made to pool them together, things changed quickly. If BAE Systems were to join forces with EADS (not a realistic proposition these days I know) they would be the biggest defence and aerospace company in the world.
I have always believed in one super European chip company. As it is, ST/Infineon/NXP etc. are too small on their own and often compete with each other. If Eurocrats get their act together to facilitate a conglomerate of these companies, I believe it would result in a major viable international player. Do not forget that the Europe is the largest common market in the world. Not capitalising on the ensuing economies of scale is madness in my opinion, and I firmly believe that narrow nationalistic concerns are the stumbling block here.
The other take on this and one I am hearing from the Eurocrats is the penalty for NOT driving consolidation.
If Europe falls out of chip manufacturing (and manufacturing more generally) it will have reduced opportunities to take part in the coming nanotechnology wave. This wave is likely to be more significant than microelectronics.
We have the academic and innovative capacity to take part, but we seem to lack the will to invest in the manufacturing part, which is where much of the value is likely to be contained and paid for.
A final thought: the lesson is not lost in Europe that the one country that has maintained an emphasis on innovation AND manufacturing is leading the continent economically and is the country that all other service-oriented European countries must go to for a bail out.
I don't know if we can use arguments from both sides of the fense.
German cars are finished products. And they are not built by a trans-Euro conglom. So the comparison is tenuous at best. German cars sell because they can demand a premium price. It's an image thing, much like Gucci handbags are for women. Careful engineering, priced quite high compared with the competition, will sell.
On the other hand, chip manufacturing MAY have become commoditized. Companies won't use high priced chips in their products just because it adds a certain cachet. It doesn't. Chips have to compete on price and performance only.
So I'm not buying that all this needs is government action. Government action can also spend a lot of taxpayers' money without much success.
Bert22306, the world's second largest vehicle manufacturer is the Volkswagen Group, which owns Skoda and Seat among other Pan-European brands, with production sites all over Europe and the world. This answers your point about German car firms not being trans-Euro conglom.
Moreover, cars such as Skoda and Seat can hardly be described as high-end cars with premium prices. I reiterate what I said above, Germany proved that it is possible to compete with the Far East with a combination of labour reforms (e.g. wage restraints), strategic and stable management (e.g. employee co-determination), diversification of risk (e.g. pan-European acquisitions and worldwide manufacturing), and constant improvements/innovation (e.g. international R&D centres).
The exact same principles could equally apply to the semiconductor industry.
Sorry, but Skoda and Seat build cars under license. It's not an Airbus-like conglom. Seat used to build Fiat copies, just like Lada did in Russia. Then they went to VW some years ago. I don't have the figures, but I'll bet a lot of money that Seat lost a big chunk of their market share to the Japanese manufacturers.
I'm not disputing the generalities about management and labor cost retraints. I'm simply saying, they are not always enough. Chips are not finished end products that consumers focus on. A better comparison might be, who builds the generators, the window mechanisms, or the transmissions, the OEM tires, for these cars? Do some of those components not get outsourced? (They do.)
Both Sokda and Seat are wholly owned subsidiaries of the Volkswagen Group. The VW group also owns Bentley in Britain, Bugatti in France, and Scania in Sweden. It is truly a Pan-European company now with mixture of mid-range and high-end offering.
Re. your second paragraph, I do not see the point you are trying to make about finished products vs. unfinished ones. Yes, European car firms outsource "some" steps/parts of the value chain but a lot of it is done in Europe. Anyway, analogies do not have to be perfect to be useful :-)
Europe cannot afford to skip chip fabrication, and if the US is managing to compete with the Far East, Europe certainly can. The pertinent point is economies of scale. The US is great at capitalising on it, Europe has not always done so because its edifice is still work in progress. The time has come to accelerate European economic integration in my opinion.
I agree with both of you -- in part.
I agree Europe can't afford to get out of the chip business. I am not sure it makes PERFECT sense.
And I agree you can waste a lot of taxpayers' money trying to beat the tidal forces of the free-market system.
Airbus was a success so why not try something. And collaborative R&D at Crolles without full corporate integration worked -- for a while -- before company interest in semiconductor manufacture slipped down the agenda and diverged.
But if the likes of ST and Infineon, with their public shareholders, don't want to be conglomerated, what's to be done?
"But if the likes of ST and Infineon, with their public shareholders, don't want to be conglomerated, what's to be done? "
That is why I said Eurocrats should "facilitate" not necessarily drive European chip integration. The lever to do this is a mixture of carrots and sticks e.g. direct financial incentives for integrated efforts e.g. in new technology nodes, and financial disincentives for direct competition in certain segments e.g. DRAM.
Here is an interesting parallel. In UK after WWII there were four private regional railways all struggling to make any money after years of neglect and unable to face the cost of upgrading to diesel/electric operation.
On the first sniff of possible government compensation the companies were eager to take the money and be nationalized out of existence.
An airbus of chips? Late for delivery, plagued by subcontractor problems, not always tested adequately, and delayed by parts shortages, in addition to being single sourced? I suppose that if the larger substrate could be made much larger, that there may possibly be some benefit if the yield wound up being adequate. But the cost of a bad substrate would be MUCH larger, it appears.
"We have the academic and innovative capacity to take part, but we seem to lack the will to invest in the manufacturing part" - this is called the European paradox, a phenomenon that eurocrats have tried to believe for ten years but that has been identified as largely a myth in more recent studies (http://en.wikipedia.org/wiki/European_paradox).
The facts are that the combined public and private R&D investments in Europe are much lower than in the US, that the market is still very fragmented in national countries and taking risks is not rewarded.
A key difference with the Airbus case is that the aerospace sector was and is much more dependent on the government and so much more amenable to large-scale 'forced' consolidation by these governments - which was probably a very good idea, as Airbus shows.
Ms. Kroes usually knows what she's talking about, and a European chip technology company might make sense, but a central problem remains: most companies creating fundamentally new markets over the past decades are not European ones (Apple, Google, Microsoft,...) and that's not likely to change any time soon.
Before they do so they better consider the arrogance of the systems engineers at Airbus. their attitude is that they know how to handle emergency situations better than the pilot, therefore when an unusual situation comes up the autopilot kicks in regardless of whether the flight crew wants it to or not.
This is was brought Air France 447 in 2009. The pilot could not control the aircraft because the autopilot kept kicking in and taking control based on faulty readings from the pitot tubes (airspeed indicators), which had iced up. Whenever the cockpit crew turned the auto pilot off and tried to correct the aircraft's flight, the flight computer assumed that they were incompetent and therefore re-asserted control of the aircraft from them. With the pitot tubes iced up, the computers thought the plane was flying too slow so it put the aircraft into a dive to pick up speed. The pilot would turn the autopilot off, pull the plane back up, only to have the damned thing re-assert itself and put the plane into a dive again. Without a master override, he couldn't keep the plane from destroying itself. Eventually it crashed into the ocean. This is also the reason the Airbus 380 which lost an engine to a fire almost crashed; the autopilot assumed the situation was different and kept taking control from the pilot when it felt the pilot was acting foolishly.
Boeing aircraft don't do this.
- Risk-averse culture (because of big government?)
- Weak funding mechanisms (much smaller Seed/Bridge/Business Angel/VC pool of money compared to the US)
- Fragmented European markets e.g. when a bright kid in the US thinks of a social networking business, he/she has a 300-million market to start with, a European kid starts with 80 millions at best)
Does anybody else remember European Silicon Structures? Any lessons to be learned from that experience? I think it can hardly be claimed as a success, but maybe that was a case of too many innovations at once rather than too many Euro-cooks spoiling the broth.
I fear that the big, lumbering bureaucracy of Airbus, riddled with political compromise, fits in perfectly with the aerospace industry but would not last long in semiconductors
I often wonder why European Engineers do not want to come to the US for the many job opportunities in this country. There are lots of jobs for qualified engineers here. I have the sense that they prefer to remain within Europe and want the jobs to be created in the continent. Is there any over-riding reason. The jobs pay much better in the USA and the work is largely the same or better.
Why European engineers want to stay in Europe? Because, ever since the 1960s or 1970s, the standard of living in Europe has rivaled that of the US. Life is a balance of work and other activities, and what Europe offers is not easy to give up.
Yes, the pay might still be better in the US, and the professional aspects of the job are too, in my opinion. But that's not all there is to life, either.
Of course, as the news programs make painfully clear these days, that equation might be changing. Globalization is here to stay, and the Euro-socialist policies are catching up with them. We can only hope the US doesn't continue to head down that path too.
Many European engineers do migrate to the United States but I think the opportunities are far less than they were during the famous brain-drain time of the 1960s.
This is partly because those U.S. companies have themselves become globalized.
The main reason is there's not much difference in pay these days. The good side of living in EU is that you'll get healthcare free (in many countries you just have to be a resident to get public services) and 20 days paid holidays (plus paid bank-holidays like here in Ireland, around 7 of them in the year). Also the attitude towards work is way more relaxed here - your boss wants to go for a pint in the evening too, so no late work.
ST, Infineon, et al certainly got lots of taxpayer help in Europe and yet are "too small in themselves" in spite of all that help. Merging them and giving wider European support may be only thing that will keep them alive.
But nanoelectronics will not come out of the legacy microelectronics companies, in my opinion, just a diode makers failed to become transistor makers who then failed to become IC makers. I vote to the IMEC R/D approach.
Germany seems to be always winning with mechanical engineering technology.This i am watching from my child hood till now nearly for about 40 years. I suggest that they go into further doing research, development and manufacturing involving machines.What about humanoid robots?
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Anything to do with industry appears to be waning in the western world, primarily because the cost of making things has risen quite high, while being relatively cheap in developing nations. I think things will make a u turn as other parts of the world begin to become more wealthy.
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