Investing in the Future of the Chip Industry

The global chip shortage is currently presenting new challenges to numerous sectors, including the automotive, mechanical engineering and IT industries. Manufacturers and suppliers are trying to meet high demand by expanding capacities and making investments worth billions. And the EU has also put the topic on its agenda, having proposed a new “European Chips Act”. As an important supplier to the semiconductor industry, we at Merck are also addressing this topic.

Where are the chips?

For the past 18 months, Covid-19 has been a huge topic. Yet apart from the pandemic, supply bottlenecks for new cars, e-bikes and electronic devices have also gained attention in recent months. One reason for this is the global chip shortage. While the semiconductor industry has been producing at full capacity for months, demand for chips is greater than the supply due to the emergence of Covid-19, logistics bottlenecks and now the economic upswing. In addition, with the advance of digitalization, which was given a major boost as a result of the pandemic, we’re seeing a steady rise in the demand for chips in a wide variety of sectors. Apart from end-user devices such as smartphones, computers or video game consoles, more and more chips are needed for data centers and the 5G infrastructure network – both in industry as well as for cars and household appliances.

According to forecasts by TSMC, one of the world’s largest semiconductor manufacturers, by the year 2025 more than 42 billion devices will be interconnected and use artificial intelligence. Not just the quantity, but also the share of value that chips account for in electronic devices is rising. In 2025, microchips are expected to account for nearly one third of the value of these devices.

Global investments

Semiconductor producers and their suppliers are therefore working non-stop to increase production and development capacities. In particular, market players in Asia and the United States are really counting on growth. TSMC recently announced plans to invest heavily to expand production and develop new technologies in the next three years to alleviate the chip shortage. Around € 30 billion has been earmarked for the construction of new chip factories in the U.S. state of Arizona. Samsung is also planning massive investments. By 2030, € 125 billion is to go towards chip manufacturing, including at new production sites in the United States and Korea.

However, in addition to United States and Asia, chip manufacturers are also counting on the European market. Intel already operates a chip factory in Ireland and is planning an additional site in Europe. At the International Motor Show (IAA), Intel CEO Pat Gelsinger announced that Germany was being considered as a possible location.

But it’s not enough for just the chip manufacturers to invest. Suppliers such as the Electronics business sector of Merck also need to do their part. After all, we supply crucial products – in ever increasing quantities – to the semiconductor industry. With our materials and solutions, we have also been helping for years to ensure that chips become more powerful and thus meet the increasing requirements of the electronics industry.

Merck is joining in

Recently, Merck announced a broad strategy update at its Capital Markets Day. This update also includes extensive investments. By 2025, we expect to achieve Group-wide annual organic growth of more than 6%. Investments are a crucial factor. We are planning to increase our investments between 2021 and 2025 by more than 50% compared with the period from 2016 to 2020. More than 70% of this will be invested in our growth drivers (Big3) within our three business sectors, Healthcare, Life Science and, of course, Electronics.

New growth program for Electronics

The Electronics business sector of Merck completed its “Bright Future” transformation program two years earlier than planned and is now moving steadily towards growth. As a business sector, our objective is to achieve an organic CAGR of 3% to 6% from 2021 to 2025. The corresponding “Level Up” transformation program is to run until 2025 and is to include investments of significantly more than € 3 billion to expand production capacities as well as semiconductor technology research and development. We want to sync our investments with those of our customers and ensure reliable supply as a result. For this purpose, we are also continuing to invest in our core markets of Taiwan, Korea, China, and the United States as well as Germany and are investing in innovations of the future, such as 3?nm/2?nm/1?nm nodes, 3D memory/logic and neuromorphic technologies. The Semiconductor Solutions business will contribute around 80% to the planned growth of Electronics in the coming years.

Politics must also play a role

It's clear that a great deal is happening. Apart from the commitment of companies, the political sphere also needs to create the appropriate framework conditions. The U.S. and Chinese governments are aware of the importance of the semiconductor industry. Particularly in Europe and Germany, I think there is some catching up to do. In her annual State of the Union speech, European Commission President Ursula von der Leyen announced that the EU must jointly create a “state-of-the-art European chip ecosystem, including production”.

This is a tremendously important realization. EU subsidies are also being discussed for the previously mentioned investment by Intel in Germany and an EU program amounting to € 145 billion to promote Europe as a microelectronics location has been launched. It’s important here to focus not only on chip manufacturers. Operating a cutting-edge chip factory also calls for a complete ecosystem of system and material manufacturers. In addition, the education system must ensure a sufficient number of highly qualified engineers and scientists as well as trained experts specializing in semiconductor technologies.

Only if we all pull together can we meet the rising demand for semiconductors and, at the same time, help Europe and Germany to catch up in the semiconductor market. In the Electronics business sector of Merck, we have charted a clear path and are also making our contribution to the digital transformation from the heart of Europe with our materials and solutions.??