Europe needs the memory chips behind artificial intelligence, and South Korean firms dominate the market. Yet high production costs, uncertain funding, and doubtful demand deter them from building in Europe. A new study suggests the EU should aim for smaller partnerships instead.

To strengthen its semiconductor industry, the EU first needs to convince foreign companies that investing in Europe makes sense. That is one of the main findings of a new study by the Berlin-based technology policy think tank interface.

The paper examines how the EU’s Chips Act 2.0 could work in an era of increasingly transactional tech diplomacy, using EU–South Korea relations as an example. Rather than chasing a major Korean chip factory, it recommends starting with smaller partnerships.

Korea’s grip on memory chips

South Korea is a major player in the global semiconductor market, particularly in memory chips used for artificial intelligence. Samsung and SK hynix together control around two-thirds of the global market for DRAM, the most common type of memory chip. Both companies are also leading suppliers of high-bandwidth memory, a key component of AI accelerators.

By contrast, Europe accounts for less than 10 per cent of global semiconductor wafer manufacturing capacity. Its strengths lie mainly in chipmaking equipment, materials, automotive semiconductors, and research. Its capacity to make advanced logic chips, which do the actual computing, and memory chips remains limited.

Attracting a large Korean manufacturer could help address this gap. Yet the study questions whether building a factory in Europe would make sense for South Korean companies. Samsung and SK hynix are already investing heavily at home. Their domestic expansion amounts to around 900tn won (€510bn).

Manufacturing costs as a major obstacle

Producing semiconductors in Europe is considerably more expensive than in Asia. According to research by ZVEI, the German electrical and digital industry association, chipmaking in Europe costs 15 to 30 per cent more than in the most competitive Asian locations. In Germany, personnel costs are three to four times higher. Electricity costs are two to three times higher and construction costs are 20 to 25 per cent higher.

The European Commission estimates that a chip factory with advanced capabilities could cost between €20bn and €40bn. But the amount of public funding available under the proposed Chips Act 2.0 remains uncertain. It depends on negotiations over the EU’s next long-term budget for 2028–2034, as well as contributions from member states and private investors. 

Any such funding would also come with strings attached. Under the proposal, eligible foreign companies could receive public funding to invest in European semiconductor facilities. In return, they would have to share supply-chain information and respond to requests about production and supply disruptions. During a semiconductor crisis, supported companies could also be required to prioritise certain orders for critical sectors.

Another question is whether Europe will generate enough demand. The EU plans to expand AI data centres and computing infrastructure, which could increase chip consumption. According to ZVEI, European demand for processors and memory chips could roughly triple by 2040, and industrial demand for processors could grow even faster. Yet even this might not be enough to make a Korean factory in Europe pay off.

The study also points to a gap between European and Korean priorities. A Korean factory in Europe would help the EU reduce its dependence on foreign chips. But it would not directly boost South Korea’s own competitiveness.

Smaller deals before megaprojects

The study outlines three ‘strategic building blocks’ for this approach. First, Europe needs a clearer picture of its own semiconductor strengths, weaknesses, and dependencies to identify what it can offer partners.

Second, governments should involve businesses more closely in bilateral discussions. The paper suggests creating an EU–South Korea semiconductor business council and working groups focused on shared interests, including chip design, green semiconductor technologies, compound semiconductors, and defence applications.

Third, the EU and South Korea should expand joint research and development, particularly in AI hardware, while putting more emphasis on turning research into spin-offs, joint ventures, and smaller investments. Some partnerships already exist. South Korean chipmaker SK hynix has cooperated with Belgium’s imec research centre since 2007. Dutch equipment manufacturer ASML also opened an R&D campus in South Korea in November 2025, with 1,500 employees.

If the EU treats the Competitiveness Partnership signed in June 2026 as self-executing, nothing will change. — interface, Tech Sovereignty and the EU’s Chips Act 2.0

Yet such ties need sustained political backing to grow. In June, the EU and South Korea launched a new Competitiveness Partnership to deepen cooperation on trade, investment, and economic security. “If the EU treats the Competitiveness Partnership signed in June 2026 as self-executing, nothing will change,” the study warns.