European semiconductor supply chain under tremendous pressure

The latest earnings reports from Europe’s top semiconductor firms—NXP (NXPI), Infineon (IFNNY), and STMicroelectronics (STM)—underscore a growing crisis in the continent’s supply chain. As auto and industrial semiconductor demand falters, the entire European electronics manufacturing ecosystem is feeling the strain.

The slowdown isn’t just about weak revenue; it has serious implications for European foundries, fabless chip designers, and suppliers of critical semiconductor materials. With increasing uncertainty over a potential return of U.S. tariffs under Donald Trump, the situation is evolving into a supply chain crisis that threatens Europe’s position in global chip manufacturing.

On the auto front, European automakers will see reduced U.S. sales due to higher prices from the 25% tariffs on Mexico- and Canada-built vehicles, directly hitting their profitability. Volkswagen, BMW, Mercedes-Benz, and Stellantis rely on North American plants to serve the U.S. market, and higher costs will make their EVs and SUVs less competitive against Tesla, GM, and Ford, which aren't affected by the tariffs.

Lower U.S. sales will cut into revenues, forcing these automakers to scale back production in Europe, reducing demand for European-made semiconductors, power electronics, and battery components. This will weaken orders for Infineon, STMicro, and NXP, exacerbating the semiconductor slowdown already driven by weak industrial and automotive markets. The tariffs won’t just hit North America—they’ll send shockwaves through Europe’s automotive and semiconductor sectors.

Cracks in Europe's semiconductor supply chain
Europe’s chipmakers, particularly Infineon and STMicroelectronics, are deeply embedded in the region’s auto and industrial supply chains. When their revenues contract, the impact is not limited to their financials—it cascades down to smaller fabless design firms, silicon wafer suppliers, and equipment manufacturers that rely on steady orders. The earnings reports from Q4-2024 confirm that this slowdown is worsening.

These figures highlight more than just financial struggles; they signal reduced orders for European semiconductor suppliers, particularly in wafer fabrication, photolithography, and specialty chemicals. A weak auto semiconductor sector means fewer orders for German silicon wafer giants like Siltronic and lower utilization rates for European fabs like STMicro’s Crolles facility.

Europe’s semiconductor supply chain faces equipment slowdown
The downturn in semiconductor demand, particularly in the automotive and industrial sectors, is not only impacting chip manufacturers like NXP, Infineon, and STMicroelectronics, but is also reverberating throughout the European semiconductor supply chain.

Suppliers of wafer fabrication tools, precision motion control systems, and packaging equipment are experiencing declining orders as semiconductor firms scale back capital expenditures, according to my report at The Information Network entitled Global Semiconductor Equipment: Markets, Market Shares and Market Forecasts.

Equipment providers that serve multiple stages of semiconductor manufacturing—including wafer processing, lithography, assembly, and test—are now seeing slower demand as fab investments are postponed or reduced.

ETEL, for example, plays a critical role in semiconductor equipment by supplying precision motion control systems used in wafer process control, laser annealing, wafer probing, wafer dicing/scribing, die bonding, and final test. While their broad application across front-end and back-end processes makes them an essential supplier, their reliance on semiconductor equipment investment means they are exposed to downturns in capital expenditures.

Similarly, ASML (ASML), EV Group, and packaging specialists like Besi are vulnerable to weaker spending from chipmakers as they navigate ongoing inventory corrections.

-- Dr. Robert Castellano, Semiconductor Deep Dive, USA.