SEMI says Europe chip industry needs leadership

PARIS Tue May 19, 2009 11:07am EDT

Heinz Kundert, president of SEMI Europe, addresses the Reuters Technology summit in Paris May 19, 2009. REUTERS/Charles Platiau

Heinz Kundert, president of SEMI Europe, addresses the Reuters Technology summit in Paris May 19, 2009.

Credit: Reuters/Charles Platiau

PARIS (Reuters) - Europe's depleted semiconductor sector needs a strong leader to unite the continent's chipmakers around common goals if chip manufacturing in the region is to survive, the European head of industry association SEMI said.

Most European chipmakers have moved production to Asia, where labor is cheaper and incentives such as tax breaks and free land are on offer. The last remaining European memory-chip maker, Qimonda, filed for bankruptcy in January.

"It's time for a pan-European solution," Heinz Kundert told the Reuters Global Technology Summit in Paris on Tuesday. "It comes down to one word: Leadership."

Kundert suggested that Europe's semiconductor makers could build a common foundry to make chips, while maintaining competition by keeping their own intellectual property, to spread the huge costs of building new factories every few years.

"Who can afford to put 6 billion into a fab that needs to be depreciated over five years?" he asked. It's not doable any more by Qimonda, by Infineon (IFXGn.DE), by ST (STM.PA)."

"It's an Intel (INTC.O), it's a Samsung (005930.KS), maybe another conglomerate with the support of the government that is able to build the fab."

He added that he did not believe Qimonda, which is still seeking a major investor but has begun closing plants, would survive as a company. "Qimonda is not sellable as a company any more, if you ask me."

Kundert said he saw a need for loss-making chipmakers to consolidate, despite an "encouraging" 9 percent increase in world semiconductor production last quarter.

"The worst is over, that's what we say -- in terms of capacity. That doesn't mean they'll make profits," he said. "It's like reading the tea leaves."

European chipmakers have tried in the past to pool research and development resources, with the help of tens of billions of euros of European Union money, but have never shared manufacturing resources on a large scale.

EU HELP?

Kundert said European Industry Commissioner Guenter Verheugen had indicated recently that the EU would be willing to help the industry, but that the sector itself needed to come up with a plan.

SEMI has warned that half a million jobs are at stake in Europe in the wider semiconductor sector. It says the industry contributes 29 billion euros ($40 billion) to Europe's economy.

Kundert disputed the widely held idea that manufacturing in Europe is too expensive, saying that only generous government subsidies and incentives in other regions such as Taiwan, Singapore or the United States made them seem more competitive.

Microprocessor maker AMD (AMD.N) has two fabs in the east German state of Saxony, which it was encouraged to build by subsidies available at the time, but is building its next fab in New York State, with the help of a $1.2 billion subsidy.

Kundert said, however, that Europe matching the subsidies available in other regions was not his preferred solution, and said no subsidies anywhere would be preferable. "That would be the best," he said.

"Maybe it is even an issue for the World Trade Organization (WTO) ... because this is unfair trade," Kundert said, but added this would be a matter for chip companies to take up and would result in a long drawn-out process.

He said the current crisis might finally drive the industry in Europe to do something decisive. "There's inertia within the companies," he said. "It needs the final kick that somebody ... is forced to do it."

(Editing by Rupert Winchester)

($1=.7337 Euro)

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