European Semiconductor Market Position in 1980s

• 1980: European producers held only 13% world semiconductor market share
• 1981-1985: Market share declined to 10%
• 1985: Europe's biggest semiconductor producer Phillips ranked 10th globally
  • Two-thirds of Phillips production came from American subsidiary Signetics
• 1985: 58.7% of total European semiconductor consumption was imported
• None of Europe's top 4 semiconductor manufacturing countries were self-sufficient

Strategic Importance of Semiconductor Manufacturing

• Semiconductors critical components in all IT products
• Enable new industries: consumer electronics, personal computers, gaming, AI
• Essential for Europe's key industries: cars, planes, industrial electronics
• Late 1970s: VLSI (Very Large-Scale Integration) systems seen as economically transformative
• European dependence on foreign imports strategically threatening
• Reduced Europe's control over future technology roadmap

European Market Challenges

• Missing several big semiconductor demand drivers
• Big markets in 1970s-80s: computers, telecommunications, industrial, government, military
• Europe's weaknesses:
  • Computer companies lost to IBM
  • Military markets smaller than America's
  • Telecommunications highly fragmented
  • Strong only in automobile/industrial markets
• Result: Europe focused on discrete/analog chips (mature technology) vs integrated circuits (leading edge)

National Champions Policy (Post-WWII to 1970s)

• European countries created national champions across various fields
• Policy logic: native players needed more scale to compete with Americans
• Government support through:
  • Preferential procurement policies by public agencies
  • R&D subsidies
• Policy failures:
  • National champions uncompetitive outside home markets
  • Government interference to preserve political goals
  • Companies split markets among themselves (e.g., France's CGE and Thompson 1969 Yalta agreement)
• Key national champions:
  • SGS (Italy)
  • Thompson (France)
  • Inmos (United Kingdom)
  • SGS-Thompson merger in 1987 (later became ST Microelectronics)

ST Microelectronics Current Performance

• 2022: $16 billion revenue, $4 billion profit
• Core markets: automotive and microcontrollers
• Comparison: TSMC made more revenue/profit in Q4 2022 than ST's entire 2022 performance

ESPRIT Program Launch (1983)

• Launched by EC under Belgian Étienne Davignon
• European Strategic Program for Research and Development in Information Technology
• Logic: Europe strong in academic research but weak at bringing research to market
• European R&D lagged: 2% GDP vs Japan/America's 3%
• 1979-1980: Davignon assembled leaders of Europe's 12 biggest IT/electronics companies
• Considered "European Airbus for semiconductors" but settled on pan-European research collaboration
• Goals:
  • Transfer advanced technologies to European companies
  • Improve cooperation between companies
  • Achieve semiconductor parity with US/Japan in 10 years

ESPRIT Program Details and Results

• Funded projects from businesses and universities
• Focus areas: advanced technologies, manufacturing tools, international standards
• Avoided near-commercial products to comply with trade competition laws
• Successes:
  • European companies improved technological competencies
  • Innovation in millimeter wave communication systems, material technologies, fiber optics
  • Inspired programs for telecommunications and biotechnology
• Failures:
  • Research technologies too far up development chain for market impact
  • Few technologies eventually came to market
  • Majority of funding went to Big 12 firms rather than SMEs

Eureka Initiative (1985)

• Proposed by France's President Mitterrand
• Response to America's Strategic Defense Initiative
• Goal: create "technological Europe"
• Focused on products closer to commercialization than ESPRIT
• Expanded to include governments outside EU (Central/Eastern Europe)
• By 1997: nearly 1,200 ongoing/finished projects worth €16.7 billion
• Significant portion tied to JESSI (Joint European Sub-micron Silicon Initiative)
• JESSI failed to create leading edge DRAM chips
• Criticism: spread resources too thinly across too many technologies

Trade Protection Measures

• Thompson argued for higher tariffs on foreign electronics imports
• 1986: EC raised tariffs on VCRs to stem Japanese imports
• Lowered tariffs on clock radios and calculators as concession to Japan
• Reduced finished semiconductor tariffs from 17% to 14%
• Finnish wafer tariffs remained 9% throughout decade
• Encouraged foreign manufacturers to import wafers and do packaging onshore

Anti-Dumping Actions

• 1987: EC brought anti-dumping case against Japanese DRAM industry
• 1989: Agreement negotiated to create price floor
• European computer makers (DRAM consumers) opposed deal
• 1990: Japanese agreed to self-implement price limits
• By then Japanese semiconductor decline already underway, Koreans climbing toward memory summit

European Market Share Decline

• Despite all policies, Europe's global semiconductor market share continued declining
• 1991: European producers market share fell to ~10%
• Remained at 10% for three decades since (likely lower today)
• Over 80% of European semiconductor production from West Germany, France, Italy, UK

National Champions Decline

• West Germany: Once Europe's semiconductor leader, production declined in second half of 1980s due to Siemens' worsening competitiveness
• Phillips: Europe's one globally competitive electronics company hit financial/managerial crisis
• Foreign takeovers: ICL acquired by Fujitsu, making policy implementation harder
• 1984 Mega project: Siemens-Phillips collaboration to produce leading edge DRAM failed

Critical 1980s Window

• Last open window for Europeans to gain ground in semiconductors
• Key events:
  • Fall of Japanese semiconductor industry
  • Rise of Taiwanese (TSMC founded 1987) and South Korean (Samsung taking share from 1986) giants
  • Technological shift in manufacturing equipment (Intel failed to master steppers, stagnated 1979-1985)
• Results: Samsung cornered memory market, Intel dominated PC CPU, TSMC shut door with foundry model
• ASML (European lithography success) sells all production to Asia and US

Policy Lessons

• 1960s European thinking: American success due to company size (IBM)
• Attempted to create big national champions via mergers
• Real reason for American tech success: ability to allow small companies to grow big
• 1980s policymakers understood this but still couldn't break attachment to big companies
• Continued attachment to failing big companies led to policy failure