"The future is uncertain for Europe," said Rosalie Zobel, the director of the European Commission. Speaking at the recent ISS Europe 2004 conference, Zobel noted that 60 percent of the electronics industry's overall investment is now moving to Asia, while less than 10 percent is spent in Europe.

At issue is whether kissing most of its manufacturing goodbye proves to be the beginning of the end for European electronics. Once manufacturing goes offshore, is it just a matter of time before product design and development jobs follow? Then, what next-R&D?

Clearly, there are no studies to prove or disprove this domino theory, much less any handle on how to stanch the flow. "We haven't got a strategy yet in terms of what to do to bring manufacturing back to Europe," said Zobel. "It is a difficult problem."

Most European semiconductor companies are treading a fine line, moving some jobs to Asia while retaining a level of investment in Europe, by carefully selecting technologies and projects to transfer. Meanwhile, major European system OEMs-key customers of Europe's chip makers-have gone several steps further. They have either given up the consumer electronics business entirely or moved a majority of core businesses-not just manufacturing, but also system design and engineering-to China.

Gerard Kleisterlee, president and CEO of Royal Philips Electronics, recently conceded that already, three of 10 Philips employees are working in China. Meanwhile, Thomson-once Philips' French rival as a consumer electronics powerhouse-agreed late last year to unload its low-margin TV and DVD player businesses onto TCL International, a leading consumer electronics company in China, by forming a Chinese-controlled joint venture called TCL-Thomson. Thomson is transferring some 9,000 jobs to the venture, and most of those "transferred" will not physically move to China. The number includes R&D engineering jobs.

"Of 3,000 employees engaged in R&D activities globally at Thomson, roughly 600 engineers developing TVs will belong to the TCL-Thomson joint venture," Thomson CEO Charles Dehelly told EE Times. Dehelly defended the deal by stressing that "no R&D jobs are lost in the agreement." It remains unclear, though, how many of those 600 engineering jobs will be kept once TCL-Thomson is up and running.

The French company holds 33 percent of the joint venture, which is expected to become the world's largest maker of TV and DVD players when it launches operations this summer. Thomson will contribute television plants in Mexico, Poland and Thailand, all of its DVD sales business, and all TV and DVD R&D centers. As a result, Thomson, once a flagship of French industry, will accept its self-demotion to "sales agent" for consumer products made in China.

Malcolm Penn, CEO of market analysts Future Horizons (Sevenoaks, England), is one who dares to defy the popular notion that Europe can no longer compete in the world market by manufacturing at home. "A complete fallacy," Penn said.

"It can be done."

But he warned that such a belief, widely circulated, can become a self-fulfilling prophecy. European semiconductor companies, for example, "have already thrown in the towel," Penn said. "They have given up."

Hein van der Zeeuw: Labor costs factor in older tech.

The conventional wisdom is that there is not much gain in moving front-end production-which is inherently less labor-intensive, but more equipment-intensive-to Asia. Higher labor costs pale next to the multibillion-dollar price tag of a brand-new 12-inch wafer fab. In contrast, van der Zeeuw said, relative labor costs become important when the value of an older process technology-such as that used for bipolar products-has significantly depreciated.

Another consideration is where the customers are. Those bipolar power products are mainly used to control voltage and current flow in a variety of consumer products, ranging from TVs and desktop computers to washing machines, fans and blenders. As a destination for job offshoring, selecting China-where a majority of the world's consumer electronics products and appliances are designed and built-is almost a no-brainer.

In the end, Philips decided that it did want to keep the bipolar transistor business but wished to manufacture with a partner-and to do so in China. The company chose Jilin Sino-Microelectronics Co. Ltd. as its fab joint venture partner. That whole "internal process" took "about two years," said van der Zeeuw. Philips owns 60 percent of the new venture and Jilin the rest.

Philips is not disclosing how many jobs were lost in Hazel Grove, in the U.K., as a result of mothballing its bipolar power fab there. Van der Zeeuw said that some engineers were transferred to another Hazel Grove-based fab, where Philips still makes MOSFETs. The latter business is going strong. While a few adventurous types went to China, the majority saw their jobs eliminated.

As production moved to China, meanwhile, so did design and development activities. Production is in Manchuria, but design takes place at the corporate parent's Chinese headquarters in Shanghai. Of about 900 Philips employees there engaged in business management, product design and application development, more than 100 are Philips Semiconductors employees. The bipolar team is among them, according to the company.

Philips flew staff to Manchuria, and transferred and installed production equipment there that is currently undergoing qualification. After all the expense of moving the production line, exactly how much is Philips saving? "Close to 50 percent," said van der Zeeuw. "We wouldn't have done it if it were only 10 percent."

"We need to rebalance our investment," said Alain Dutheil, corporate vice president for strategic planning and human resources at STMicroelectronics. No way is the company short-changing Europe, said Dutheil, pointing to a 12-inch manufacturing facility under construction in Catania, Italy, and to the 12-inch Crolles2 pilot line in France that's currently ramping up in partnership with Philips Semiconductors and Motorola Inc. "We are not cutting investment in Europe."

However, he said, "Many of our customers are moving to China, and the Chinese market is growing very fast. We need to be there to serve our customers."

So far, ST's semiconductor fabrication investment in China is limited to the back end of chip production. Nevertheless, the company already has more than 500 engineers in China developing application software and optimizing reference designs for set-top boxes and DVD players to be sold in that nation.

Some 1,500 people in India are working on ST's chip designs today, and the company expects that China will also start designing chips in due time-perhaps within the next five or six years.