European Defense Expansion Constrained by Semiconductor Supply Bottlenecks
Alina Collins
Europe's defense budgets keep rising, but the chips modern weapons need cannot be made at scale on European soil — the money is there; the supply chain is not — and fragmented procurement is the core bottleneck.
What chips is European defense actually short of?
Modern missiles, drones, radar, and electronic-warfare systems run on gallium nitride and silicon carbide — compound semiconductors designed for high-frequency, high-power applications — not standard commercial logic chips.
This means → even doubling Europe's commercial wafer capacity would not close the defense-electronics gap. The two production lines barely overlap.
Europe holds roughly 9%–10% of global semiconductor manufacturing capacity. The European Chips Act targets 20% by 2030, but the European Court of Auditors' 2025 assessment concludes that target is unlikely to be met on the current trajectory.
Why can't money alone buy scale?
MBDA CEO Eric Béranger said at VivaTech 2026 that the real constraint is not political will — it is unsynchronized procurement timelines across member states.
In plain terms = 27 countries buying separately, each on its own schedule, means joint programs splinter into small national orders. Suppliers see no stable, large-scale demand and will not invest in capacity.
ArianeGroup CEO Christophe Bruneau put it more bluntly: "I have no contracts from Europe. Without contracts, I will lose a lot of money." Political statements without procurement commitments leave the industrial base unable to plan.
How is Thales trying to break through?
Thales Chief Strategy & Innovation Officer Philippe Keryer described the semiconductor supply chain as "highly concentrated at two ends of the world" and laid out two paths: invest in proprietary fab capacity for defense-relevant chip categories, and partner with Foxconn and Radiall to build advanced packaging facilities in Europe.
This means → Thales's strategy is "make what we can in-house, package the rest locally with allies" — two tracks to reduce dependence on Asia and the U.S.
Thales also announced a partnership with Renault to scale drone manufacturing. Drones demand higher volumes, lower unit costs, and faster iteration. This reflects a shift in defense-electronics supply chains from "low-volume precision" toward "high-volume speed."
The market is growing — how much can Europe capture?
Global military semiconductor market size reached $12.9 billion in 2025, with a projected CAGR of 11.2% through 2035, according to Global Market Insights.
But a 2025 policy report from France's IRIS warns: ample funding does not equal reduced dependence. Europe's gap is not just about money — it is about industrial specialization, procurement coordination, and converting political intent into enforceable contracts.
In plain terms = the pie is getting bigger, but as long as European nations keep buying separately, no one will bet on capacity investment. Whether budget growth actually translates into sovereign production capacity remains the biggest open question of this rearmament cycle.
Content is for reference only, not financial advice.