Study: Semiconductors are critical to Europe’s defence value chain

Defence currently accounts for only a small share of total semiconductor production, but the sector is strategically important. A study commissioned by the Chips from Tampere programme and conducted by consultancy Spinverse provides timely input for the preparation and implementation of the EU’s Chips Act 2.0.

Strengthening Europe’s defence capabilities has become a major policy priority. At the same time, dependencies on Asia and the United States in critical technologies have raised growing concerns about Europe’s strategic autonomy. Supply chain disruptions during the COVID-19 pandemic highlighted in particular the EU’s dependence on Asia across the semiconductor value chain.

The EU responded with the European Chips Act. The legislation is now entering its next phase, as the European Parliament and Member States negotiate the second generation of the Chips Act on the basis of the European Commission’s proposal and against a fundamentally changed geopolitical backdrop.

Petri Räsänen, Programme Director of Chips from Tampere, stresses that stronger cooperation between technology sectors is essential if Europe is to achieve its strategic objectives.

“Europe’s strategic autonomy requires new semiconductor investments and much stronger cooperation between the defence, technology and semiconductor industries. The Chips from Tampere programme aims to ensure that Finland and the Tampere Region provide an attractive platform for new investments and international partnerships.”

Spinverse’s study on the role of semiconductors in the European defence industry value chain

Semiconductors-for-Defence-Key-Insights-from-Industry-Interviews-FINAL Lataa

Semiconductors in defence FINAL Lataa

Defence needs to be recognised as a key semiconductor application sector

Chips Act 2.0 seeks to strengthen the use of semiconductors across strategically important industries. High-volume sectors such as the automotive industry have naturally long been recognised as major semiconductor application areas. However, from the perspective of defence capability and European sovereignty, the defence industry must also be recognised as a critical application sector.

This is particularly relevant for the Tampere Region, which is home to approximately 40 per cent of Finland’s defence industry. At the same time, the rapidly expanding market for dual-use technologies and products is creating new business opportunities for the region’s high-technology companies.

To deepen understanding of the role of semiconductors in the defence industry, Business Tampere commissioned Finnish consultancy Spinverse to conduct a study on the role of semiconductors in the European defence industry value chain.

Growing demand and solutions to critical dependencies

Spinverse carried out the study by interviewing key European stakeholders from the defence and semiconductor sectors, supported by background analysis of the value chain. Defence is a highly sensitive industry, which means that detailed information on all parts of the value chain is not available through public sources.

The study highlights the dual nature of the defence sector’s role in the semiconductor market. Its share of total semiconductor production remains small, but strategically the sector is highly critical. Defence currently accounts for around one per cent of semiconductor manufacturing in the EU.

Low production volumes create a need for cost-efficient solutions. This results in a challenging relationship between scaling up production and reducing the price of end products: lower prices require higher volumes, while lower prices would themselves help stimulate additional demand and increase volumes.

At present, civilian sectors are the main drivers of semiconductor markets, innovation and investment. The defence sector generally adopts mature technologies that are already commercially available. Dual-use products therefore play an important role in increasing production volumes.

More broadly, Europe’s semiconductor ecosystem is constrained by fragmentation across the value chain and a lack of scale.

According to the study, achieving greater scale will require coordinated policy measures. Concerns over security of supply and supply chain resilience are increasing interest in European-made components. Although defence companies have a general willingness to favour European components, procurement decisions continue to be driven primarily by price, performance and reliability.

In practice, buyers seek the best available quality at the most competitive price. Market forces alone are therefore unlikely to deliver the level of resilience Europe requires. Public funding, coordinated procurement policies, active industrial policy and stronger cooperation between ecosystems will also be needed.

Globally, the semiconductor market serving the defence sector is expected to grow strongly in the coming years. In 2025, its total value was USD 12.9 billion. Forecasts indicate that the market could reach USD 36.6 billion by 2035.

Study provides input for the development of Chips Act 2.0

The Business Tampere study was completed at a timely moment, as the European Commission published its proposal for Chips Act 2.0 in early June.

Spinverse presented the preliminary findings to a European audience on 10 June at an event organised by the Tampere and Pirkanmaa EU Office together with Saxony and North Rhine-Westphalia. The event focused on the role of semiconductors in the defence and space industries.

At the same event, the European Commission presented in greater detail the proposal it had published the previous week.

The Commission proposal recognises defence as one of the critical application areas for semiconductors. It includes measures aimed, among other things, at increasing demand, although many details still require further clarification.

The coming autumn will therefore provide an important window for influencing the final shape of the legislation. The newly completed study provides valuable background information and evidence for the negotiations ahead.

Tampere Region actively contributing to European semiconductor policy

The Tampere Region is actively engaged as the future Chips Act moves through negotiations in the European Parliament and among EU Member States towards implementation.

Strong working relationships with EU institutions and key decision-makers provide a solid foundation for effective advocacy. As the chairing region of the European Semiconductor Regions Alliance (ESRA), the Tampere Region is also well positioned to contribute to discussions on the detailed provisions and implementation of the future legislation.