1. Analysis of Effectiveness of EU Nanoelectronics R&D Programmes in Developing Supply Chains Presentation to DG/INFSO Dr Neil Adams and Prof Chris Pickering Partners – Innovation Bridge Consulting October 2011 1

2. Outline 1. OBJECTIVES 2. METHODOLOGY and SCOPE 3. RESULTS 4. BENCHMARKING 5. CONCLUSIONS, ISSUES AND RECOMMENDATIONS 2

3. OBJECTIVES The aim of this study was to analyse European Commission (EC) Framework 7 (FP7) Nanoelectronics and other EC-funded R&D projects (e.g. EUREKA, JTIs) contracted in 2007-2010 to identify the quality of the emerging supply chains that are being created to benchmark them against existing Nanoelectronics industry supply chains and how the industry involvement compares with other collaborative R&D programmes in other market sectors, e.g. automotive to identify options for enabling and increasing effective co-operation across the supply chain by changes to EC funding rules and instruments. 3

4. METHODOLOGY OVERVIEW Focused on FP7 and other Nanoelectronics programmes (JTI/JUs, EUREKA) Looked at Nanoelectronics projects contracted in 2007-2011, underway or completed Looked across full range of Programmes and Instruments FP7 CO-OPERATION RTD Programmes: ICT and ICT-FET, NMP JUs: ENIAC, ARTEMIS EUREKA: MEDEA+ (Phase 2), CATRENE FP7 PEOPLE: Marie-Curie FP7 CAPACITIES: Research for SMEs, etc FP7 IDEAS: European Research Council COMPETITIVENESS & INNOVATION PROGRAMME (CIP) EUROPEAN REGIONAL DEVELOPMENT FRAMEWORK (ERDF) : INTERREG EUREKA: EUROSTARS (for SMEs) Analysed participation in EU Nanoelectronics collaborative projects by Partner and Supply Chain Position, Project Type, etc Compared participation by key players in the Nanoelectronics market for their appropriate supply chain position in the different Project Types, benchmarked against Automotive supply chains Analysed supply chain linkages within and between projects 4 Limited MS participation

5. SCOPE OF PROJECTS CONSIDERED All projects funded by the Nanoelectronics Unit of DG/INFSO Projects funded by the Microsystems Unit of DG/INFSO which included integration with micro- electronics (excluding stand-alone MEMS projects for example) Projects funded by other DG/INFSO Units in the ICT programme and by DG/RES in the NMP Programme, which included integration with micro-electronics, e.g. in application-related Challenges and FET, but excluding embedded systems architecture-related projects Photonics projects were included when the photonic system was integrated on CMOS, for example, but excluded when they were focused on discrete photonic components such as lasers Organic electronics and OLAE were mostly excluded as the technology is relatively immature and dimensions/integration densities, etc are not at the nanoelectronics scale All projects funded by ENIAC All projects funded by CATRENE and Phase 2 MEDEA+ projects Projects related to Nanoelectronics and integration with Microelectronics in other EU programmes including Capacities (Research for SMEs and Research Potential of Converging Regions), People (Marie-Curie IAPP) and European Research Council (Advanced Investigator). The study only used publicly available data on EU Programmes and Projects e.g. from CORDIS 5

6. Breakdown of EU Nanoelectronics Collaborative projects by programme (2007-2011) 66 191 projects analysed in total 20% funded by Nanoelectronics Unit directly 50% in MEDEA+/CATRENE/ENIAC – NB not all MS have equal access ProgrammeSub-programmeNo COOPERATION ICT-Nanoelectronics (including Design) 38 ICT-Micro/Smart Systems 17 ICT-Photonics/Organic Electronics 18 ICT-other7 ICT-FET8 NMP5 JTI/JU ENIAC28 EUREKA MEDEA+39 CATRENE25 CAPACITIESResearch for SMEs1 Research Potential1 PEOPLE Marie-Curie Industrial-Academic Partnerships 3 IDEAS ERC Advanced Investigator Grants 1

7. Breakdown of EU Nanoelectronics Collaborative projects by funding (2007-2011) 77 MEDEA+/CATRENE costs estimated using 200k per person-year National funding levels for MEDEA+/CATRENE estimated by averaging levels of national support across different countries and participant types FP7 eligible costs are only about 12% of total costs of all relevant programmes

8. Project Type Breakdown used in Analysis 88 FP7 has more emphasis on projects focusing on Integration and less on Application, reflecting fact that ENIAC/ CATRENE/ MEDEA are intended to be more application driven Within FP7 Equipment projects there is a project (SEAL) supporting multiple (17) equipment assessment sub-projects ENIAC Project Categories CATRENE Project Categories DG/INFSO Nanoelectronics Unit Project Categories EU Project Definition used in this study (main focus) Applications -APPLICATION Semiconductor Process & Integration Process Development & Systems Integration TECHNOLOGYINTEGRATION Design Technologies Design AutomationDESIGN Equipment, Materials & Manufacturing Manufacturing Science MANUFACTURINGEQUIPMENT

9. Supply Chain positions and Organisation types used in Analysis 99 Major players in the above Organisation categories participate in all project types Supply Chain PositionOrganisation Designation 1. Product/ system suppliersOEMs (O) 2. Sub-system provider including Electronic Contract Manufacturing 3. Integrated Device Manufacturer including Fabless 4. Foundry Integrators (I) 5. Design House 6. Design Tool Supplier Designers (D) 7. Processing and Metrology Equipment Manufacturer 8. Materials Supplier Equipment/Material Suppliers (E) 9.Research Institutes and UniversitiesResearch Institutes (R)

10. Top Participants in FP7-only Nanoelectronics Projects 10 Dominated by Research Institutes - 3 of the top 19 participants are Industry Most top Research Institutes (not all) also participate in EUREKA/ENIAC

11. Top Participants in all EU Nanoelectronics Projects 11 Still major involvement of Research Institutes - 5 of top 10 Industry involved in 5 out of top 10 More involvement of major Manufacturing Supply Chain players in EUREKA/ENIAC than FP7 – this reflects EC encouragement of IDMs going into ENIAC

12. Strength of Partner involvement in EU Nanoelectronics Collaborative Projects 12 A relatively small group of key participants is involved in multiple EU Nanoelectronics collaborative R&D projects 33 companies (out of 647) and 60 Research Institutes (out of 324) are involved in 5 or more projects There is a long tail of organisations only involved in a few projects - there are approx 466 companies and 186 Research Institutes involved in only one project UK Companies: Oxford Instruments – 3 Bede Instruments – 2 etc UK Universities: Cambridge – 6 Glasgow – 5 etc

13. Involvement of Major Supply Chain Players (a) Equipment & Material Suppliers 13 Major Equipment providers are much more involved in EUREKA/ENIAC than FP7. Note the absence of BE Semiconductor Industries N.V. in all EU-funded projects and the absence of ASML in FP7, which is important since the NL equipment industry accounts for 70% of the EU total. Some US owned Equipment companies with a European presence participate to a limited degree, e.g. Lam, Applied Materials and KLA-Tencor (the latter only in FP7).

14. Involvement of Major Supply Chain Players (b) Design houses and tool suppliers 14 Major design companies have limited involvement in both EUREKA/ENIAC and FP7 Programmes (each participant is involved in a relatively small number of projects), reflecting fragmented activity/ capability and the high involvement of SMEs in this domain.

15. Involvement of Major Supply Chain Players (c) IDMs and Foundries 15 Major IDMs are much more involved in EUREKA/ENIAC Programmes than FP7 Although major IDMs are collectively involved in 43% of FP7 projects this is dominated by STM and Infineon, who between them are involved in 33% of FP7 projects. NXP, Lfoundry, Xfab and AMS have little or no involvement in FP7. Some US owned companies with a European presence do not participate in FP7 at all, e.g. TI. Other US companies participate to a limited degree, e.g. Global Foundries, Intel, Micron (now acquired Numonyx) There is very limited UK Industry involvement in FP7 and EUREKA/ENIAC Programmes, with no significant players involved e.g. ARM is in 1 FP7 Nanoelectronics project – UK Universities in EC projects link overseas rather than with UK companies Fabless design companies are absent from the data, reflecting the lack of major fabless EU companies

16. Involvement of Major Supply Chain Players (d) Electronic Contract Manufacturers 16 Electronic Contract Manufacturers, including Electronic Manufacturing Service (EMS) companies that provide Packaging, Assembly and Testing for OEMs, and Original Design Manufacturing (ODM) companies that assemble electronics systems in high volume markets, are dominated by US and Taiwanese companies. Major EU EMS companies such as Elcoteq (FI) (ranked at no 7 in the global market with 2.9% market share), NOTE (SE) and new players like Nanium (PT) are not involved in these EU Programmes. There are no significant ODM companies in the EU – the top 10 world players are all Taiwanese. The US and Taiwanese EMS and ODM companies do not participate in EU R&D programmes, which may be a significant gap and disadvantage for the commercialisation of European R&D in global markets and supply chains.

17. Involvement of Major Supply Chain Players (e) OEMs 17 Major OEMs are much more involved in EUREKA/ENIAC Programmes than FP7 – NB there are more (twice as many) Application projects in the former Note the extremely low involvement of Nokia and Philips in FP7 The data contain evidence on the extent of geographical clustering, with obvious examples being clear, e.g. CEA with STM, but due to the complexity and large volume of data it was not possible to analyse these geographical connections (e.g. how well Institutes like IMEC connect to nearby companies like Philips) in the time available

18. Influence of Research Institutes on Industry Supply Chain Players As Industry participates more in the EUREKA/ENIAC Programmes than FP7 (examples include IDMs such as Lfoundry and On Semiconductor and OEMs such as Gemalto and Philips) the EU relies on technology transfer partnerships in non-FP7 instruments to transfer expertise developed in FP7 projects to such companies e.g. through Research Institutes involved in both FP7 and EUREKA/ENIAC Programmes such as CEA (rather than those that focus more on FP7 such as EPFL, UCC, UK Universities) 18 Networks of Excellence can assist in transferring knowledge from Research Institutes to IDMs e.g. Nanofunction which is developing a virtual Fab

19. How well are the major market players involved in FP7 Nanoelectronics projects? Major players here are defined as those who are prominent in current manufacturing supply chains (taken from EC reports, e.g. ICT MAN study): OEMs: NOKIA, ERICSSON, BOSCH, SIEMENS (5), PHILIPS (5), THALES (9), EADS, FIAT (5) IDMs and Foundries: INTEL, STM (24), INFINEON (12), GLOBAL FOUNDRIES, NXP (4), NUMONYX, BOSCH, AMS, ARM Design Companies: CADENCE, PHOENIX, SYNOPSYS (4) Equipment and Materials Suppliers: SILTRONIC, SOITEC, APPLIED MATERIALS, KLA-TENCOR (3), LAM, ASMI, AIXTRON, SUSS MICROTEC, ADIXEN, ION BEAM SERVICES 19 EQUIPMENT & MATERIALS SUPPLIERS DESIGN COMPANIESIDMs & FOUNDRIESOEMs No984325 % of Total (99)9%8%43%25% 26 FP7 APPLICATION Projects 35 FP7 INTEGRATION Projects 18 FP7 DESIGN Projects 14 FP7 EQUIPMENT Projects FP7 is successfully involving major players across the supply chain in line with the types of projects being funded, but participation of key players is patchy and there are significant omissions (e.g. ASML, Lfoundry, Xfab)

20. Linkages between major Industry players in FP7 projects 20 IDMs & FOUNDRIES OEMs DESIGN COMPANIES EQUIPMENT & MATERIAL SUPPLIERS 6 2 12 2543 89 2 7 2 Top OEMs – THALES, FIAT, PHILIPS and SIEMENS - are involved in 18 projects. Another 7 projects involve other OEMs eg Ericsson Top IDMs – STM and INFINEON - are involved in 33 projects. Another 10 projects involve other IDMs eg Numonyx, Bosch, NXP, Global

21. Example Supply Chain in STREP: E-STARS 21 This is the only FP7 project where major Equipment, IDM and OEM companies are all involved – spanning all parts of the supply chain. A specific major Design company is not involved, but design activities here are covered by the IDM and Research Institutes

22. Example Supply Chain in Integrated Project: NANOPACK 22 Relatively small players involved in only one or two projects overall

23. Comparison of estimated funding levels (2007-2010) Funding reflects maturity and nature of the different market sectors ­ Automotive and Aerospace are mature and R&D programmes are driven by leading industry players, with significant OEM Private Venture (PV) funding investment. EU investment is focused on specific themes reflecting societal needs such as low carbon transport, more efficient vehicles. ­ Security market is fragmented and it can be difficult to justify industry Private Venture funding investment. Hence R&D programmes tend to be driven by national government requirements and funding. ­ Nanoelectronics market is relatively immature but rapidly growing. Hence the need for significant national and EU investment in R&D. 23 SectorFP7 Projects – EC contribution ( p.a.) Other Funding Streams – Total Costs ( p.a.) EU Turnover ( p.a.) Automotive200M20B (OEM PV) 550B Security320MMainly national funding programmes 79B Nanoelectronics115M (plus 35M ENIAC) 910M (EUREKA) 30B Aerospace350M230M (CleanSky) +12B (OEM PV) 105B

24. Benchmarking Major Nanoelectronics Supply Chain Player Involvement with Automotive FP7 Projects – (a) OEMs 24 Major Automotive OEMs are involved in far higher numbers of FP7 projects than their Nanoelectronics equivalents: Nokia and Philips for example are not significant players in these FP7 Nanoelectronics projects.

25. Benchmarking Major Nanoelectronics Supply Chain Player Involvement with Automotive FP7 Projects – (b) Tier 1s 25 The top Nanoelectronics IDM participants and Automotive Tier 1s are involved in similar numbers of FP7 projects.

26. Benchmarking Major Nanoelectronics Supply Chain Player Involvement with Automotive FP7 Projects – (c) Research Institutes 26 Top Research Institutes are more extensively engaged in FP7 activities for Nanoelectronics than Automotive.

27. Comparison of Nanoelectronics and Automotive emerging supply chains in EC R&D projects The higher level of involvement of OEMs and lower level of involvement of key Research Institutes in the Automotive FP7 Programme compared to the Nanoelectronics FP7 Programme is consistent with the higher automotive focus on application projects driven by top-down OEM requirements. The Nanoelectronics FP7 projects are more driven by Research Institutes and IDMs. Concerns have been expressed by the EC and some major OEMs that the automotive supply chains are too rigid and there are major barriers to increasing SME involvement and getting SME innovations into OEM supply chains. There is a complex long tail of niche companies involved in one or two FP7 Nanoelectronics projects, with key roles in some of the emerging supply chains being formed. SMEs appear to be key players here, particularly in Design and Equipment, but the publicly available data used in the study does not identify SMEs and therefore it was not possible to analyse the effects of the programme on SMEs This gives an opportunity for FP7 to support value-adding Nanoelectronics collaborative links between SMEs and other supply chain partners that is less evident in the automotive domain. 27

28. Comparison of SME funding instrument projects in Automotive and Nanoelectronics (from 2007-2010) Significantly more automotive projects have been contracted using EU funding instruments specifically aimed at innovative SMEs than for Nanoelectronics. Are support measures for innovative Nanoelectronics SMEs sufficiently covered by the main FP7 Cooperation Programme? There are a few Nanoelectronics Equipment projects that involve SMEs and Research Institutes working together in partnership e.g. SEAL, but these are collaborative R&D projects with SMEs performing R&D rather than having R&D performed on their behalf (as in the Capacities/ Research for SMEs Programme). 28 Area of Activity Total Number of Projects Capacities/ Research for SME & SME Association Projects Eureka/ EUROSTARS Projects Total R&D Projects for innovative SMEs (No, % of total) Automotive1415712 (9%) Nanoelectronics191101 (<1%)

29. The report: Summarises the conclusions and issues raised by the analysis for each part of the supply chain: Product/system suppliers Sub-system providers (including EMS), Integrated Device Manufacturers (including Fabless) and Foundries Design Houses and Design Tool Suppliers Processing and Metrology Equipment Manufacturers and Materials Suppliers Research institutes and Universities Suggests recommendations that follow from the analysis Conclusions, Issues and Recommendations 29

30. Conclusions Market-leading OEMs are involved in FP7 in line with the numbers of Application projects being funded, but there are surprising gaps, e.g. Nokia, Philips. The pull-through to market of know-how being developed in FP7, e.g. by Research Institutes, relies on the linkage with the EUREKA/ENIAC Programmes. This is a problem as certain Member States are only slightly or not at all represented. How can the output of FP7 projects be made available to other OEMs who do not currently participate? Recommendations 1)The FP7 Nanoelectronics Programme should be integrated as closely as possible with ENIAC and CATRENE 2)Consider mechanisms to provide funding for key participants from key MS with limited involvement in ENIAC and/or CATRENE, e.g. ARM. 3)Simpler rules for participation should be considered such as a reduced number of partners (2-3), which would reduce bureaucracy and allay fears of IP leakage in large consortia. 4)Consider specific programmes aimed at strategically important societal problems with 100% funding and/or payment on deliverables (cf. ESA, DARPA). Product/ system suppliers – Conclusions and Recommendations 30

31. Conclusions Major Electronic Manufacturing Service (EMS) companies are not involved, although there are many SMEs involved in PAT that are present in single projects only. Also, IDMs may be doing R&D on this in-house. Major EU IDMs participate far less in FP7 than EUREKA/ENIAC Programmes – especially important for More than Moore. STM and Infineon dominate participation, others are less visible. Fabless design companies not visible – lack of major EU market players (not in world Top 10). One issue is lack of UK industry involvement (including fabless) in FP7 and Joint Programmes. Recommendations 5)Consider specific Industry-only project calls for strategic topics. 6)Consider incentives used by the UK Technology Strategy Board (TSB), which could encourage Industry involvement in FP7. For example: ­ Limit Research Institutes to no more than 30% of project funding ­ Disallow Research Institute participation without a national Industry partner. 7)Consider mandating use of EU manufacturing facilities or technology transfer to EU product suppliers. 8)Consider mandating particular types of participants (e.g. IDMs) in selected FP7 projects Sub-system providers (including EMS), Integrated Device Manufacturers (including Fabless) and Foundries – Conclusions and Issues to address 31

32. Conclusions Major design companies low involvement in FP7 and EUREKA/ENIAC Programmes reflects fragmented market and higher involvement of Electronic Design Automation (EDA) SMEs. SME role is especially important here. How can the SMEs in this part of the supply chain, many of which participate in only 1 or 2 FP7 projects over 3-4 years, be supported to have a more sustainable presence? Recommendations 9/10) Improve access of SMEs (e.g. EDA and PAT) to FP7 programmes by use of SME-specific measures Design Houses and Design Tool Suppliers – Conclusions and Recommendations 32

33. Conclusions There are a low number of Equipment projects in the FP7-only programme so Equipment companies are more involved in EUREKA/ENIAC Programmes. ­ There may be equipment development embedded in Integration focused projects. There is low consumption in EU and the large export market in US/ Asia is difficult for SMEs to access. How can SMEs be helped to develop innovative equipment solutions with a view to these being taken up by fabs in the EU and beyond? Recommendations 11)Consider developing a new instrument to support bilateral assessment between equipment suppliers and users, building on the successful elements of the old Semiconductor Equipment Assessment (SEA) initiative, to encourage manufacturing-driven innovations and links between researchers, SMEs and fabs. Cost is a significant barrier to implementing the same model as before, but there could be scope for a more creative approach if cost sharing is approached more flexibly, e.g. focusing the support funding on the prototype equipment 12) Develop joint international programmes with key export market areas such as US, Far East focused on Equipment and take-up by end-users. For example, a joint EU-US SEA Initiative including US fabs based in EU, may encourage take-up and potential export of EU equipment to their main fabs in US. Processing and Metrology Equipment Manufacturers and Materials Suppliers - Conclusions and Recommendations 33

34. Conclusions Research Institutes are well engaged in FP7 but there are important Institutes, e.g. UK universities, EFPL, etc that are far more involved in FP7 than the EUREKA/ENIAC Programmes where major Industry players are more involved. Recommendations 13) The FP7 Nanoelectronics Programme should be integrated as closely as possible with ENIAC and CATRENE (this is Recommendation 1). Research Institutes and Universities - Conclusions and Recommendations 34

35. Conclusions In FP7-only Nanoelectronics projects there are only a few examples with major players (e.g. OEMs, IDMs, equipment suppliers) covering the complete supply chain. Major players need to access innovations developed by small companies and bring them rapidly into their supply chains SME involvement is especially important for PAT, Design and Equipment but involvement in FP7 is through a large number of small companies participating in one or at most two projects. It is not clear how well these companies are linked with the major IDMs and OEMs or supported by FP7. Nanoelectronics SMEs are not significantly involved in EU pan-thematic support measures targeted at small companies, such as Research for SMEs or EUROSTARS There is only limited involvement of US-owned companies in EU programmes. Should this be increased. If so, how can jobs/ technology/ profits be kept in the EU? IP is an inhibiting issue from US company perspective. There is limited UK Industry involvement in FP7 and EUREKA/ENIAC Programmes. UK Universities are involved, but there is therefore a lack of local Technology Transfer in EU Programmes. Cross-supply chain Conclusions 35

36. 14) Consider mandating participants covering key parts of the supply chain. E.g. to encourage major players, IDMs, OEMs, etc to collaborate across the supply chain with, e.g. equipment, design, packaging suppliers? 15) Increase flexibility in existing collaborative projects to bring in new partners rapidly and with minimum bureaucracy. 16)The Nanoelectronics programme should consider introducing specific SME support measures, as implemented by other FP7 themes, e.g. NMP, Security and national funding schemes, such as : SME topics mandating 50% of funding to SMEs and/or an SME Coordinator UK TSB Grant for R&D scheme (Proof of Market/ Proof of Development) especially useful for micro/small companies UK-like Small Business Research Initiative (SBRI) calls providing 100% funding for small consortia (1 or 2 partners) addressing societal problems, building on lessons from the US Small Business Innovation Research (SBIR) Programme Cross-supply chain Recommendations 36

37. TSB Support for SMEs: Grants for R&D 37