Spain will focus on producing less-advanced semiconductors used in domestic industry after its ambitions to make cutting-edge microchips have failed to attract investment to date, according to people familiar with the government’s plan.

Following losing bids for production facilities to Germany and the U.S. this year, Prime Minister Pedro Sánchez is concentrating Spain’s 12.3-billion-euro ($12.9 billion) plan on midrange semiconductors, the people said, asking not to be identified as the strategy is not public.

“Spain has not changed its position. From the start, the key priority of our strategy was to attract companies that can either design or produce microchips, and parts of the value chain,” according to a statement from Sanchez’s press office.

Spain has for now scaled back its aspirations to produce the most technologically sophisticated chips and is adapting its plan to tap rising global demand for chips of between 10 nanometers and 28 nanometers that can supply its automotive industry, which is the second largest in the EU, the people said.

The country aspires to become a top European Union producer as the bloc aims to double its global market share in microchips to 20 percent between 2020 and 2030, after pandemic-related supply disruptions and rising geopolitical tensions have led to calls for more local production.

When Spain first announced its strategic plan, financed by EU recovery funds, more than half of the budget was earmarked to subsidize chips smaller than 5nm. These top-of-the-line semiconductors require facilities that cost tens of billions of dollars to develop.

Even before the plan was officially announced, Spanish officials considered shifting strategy after U.S. tech giant Intel picked Germany to set up a 17-billion-euro European complex in March, according to the people.

Subsequently, a large US manufacturer pulled out of advanced talks on an investment deal in Spain after the Biden administration announced $50 billion in subsidies for chip producers, they said.

Focusing on less-advanced chips range will cater to the bulk of global demand, increasing the chances of attracting manufacturers to Spain, which does not have an established technology ecosystem of suppliers and talent, the people said. Spain’s original plan included 2.1 billion euros earmarked for semiconductors thicker than 5nm.

“We will subsidize manufacturing of chips in Spain based on innovation and in line with the EU Chips Act, which could be thinner or more mature chips,” according to the press office statement.

“We have a clear strategy, but we adapt as the market evolves.”

This matches a shift in European policy, after the European Commission proposed the Chips Act early this year to allow subsidies for the production of “first of a kind” semiconductors.

Countries with large automotive industries, including France, pushed to subsidize less-advanced chips needed for car production, arguing that the EU cannot only focus on cutting-edge chips if it wants to meet the 20 percent target.

EU countries last week passed their version of the Chips Act and expanded the scope for subsidies slightly.

Spain claimed its first success in its push to attract semiconductor business when it reached an agreement with Cisco Systems in November to set up a chip design center in Barcelona. The size of the investment was not disclosed.

Samsung Electronics is the top target for Spanish officials as it may decide on a major European investment plan next year, according to the people.
Top executives from the South Korean company toured the continent during the summer to view potential destinations, they said.

In November, Sánchez visited Samsung’s chip manufacturing complex in Pyeongtaek and spoke with top executives about investing in Spain.

However, Spain faces stiff competition even for investments into less-sophisticated plants. A day before Sánchez landed in Seoul, his Dutch counterpart Mark Rutte met South Korean President Yoon Suk Yeol to discuss cooperation in the chip industry.

By Tara