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Semiconductor Industry Landscape in Latvia

The global technology landscape is being reshaped by advancements in the semiconductor industry, with Latvia poised to emerge as a key player. Known for its strong manufacturing and research capabilities, Latvia's semiconductor industry is characterized by innovative developments, significant challenges, and substantial opportunities, all driven by global trends.

The semiconductor landscape in Latvia

The first beneficial step for the development of the semiconductor industry was taken in 2022 with the signing of a Memorandum of Understanding (MoU) to develop Latvia's capacity to manufacture chips for electronics. The MoU was signed by multiple stakeholders, including the Institute of Mathematics and Computer Science of the University of Latvia, Institute of Solid State Physics of the University of Latvia, University of Latvia, Ministry of Education and Science, Ministry of Economics, Electronic Communications Office of Latvia, "Tet", "MikroTik", the Employers' Confederation of Latvia, Riga Technical University, Liepaja Special Economic Zone Authority and ”LMT”.

While small in numbers, the semiconductor ecosystem in Latvia has a strong historical heritage that provides a stable foundation for startups and talent. However, in order to foster a common understanding of the landscape and possibilities for its expansion, it is necessary to identify existing competences in Latvian companies. The semiconductor landscape overview is based upon the value chain model created by McKinsey. The value chain, in essence, is a series of stages focused on the design, production, and distribution of semiconductor devices like microchips and integrated circuits, which are essential components of modern electronics. Some Latvian enterprises cover more than one stage of the value chain, which is why some companies are included more than once.

The first stages of the value chain, which include the manufacturing of materials and required equipment, are covered by businesses such as “KEPP EU”, “Falcon Sapphire” and “SIDRABE VACUUM”.

Historically, the manufacturing of semiconductors and related products has been done by "ALFA RPAR" and "RD ALFA Microelectronics", which currently are the only enterprises venturing into front-end manufacturing as well as back-end and assembly of components.

However, the current industry landscape in Latvia primarily focuses on the end tail of the whole electronics value chain, rather than the more focused semiconductor value chain. This means that most Latvia-based manufacturers are primarily concerned with manufacturing electronic components based on existing semiconductor technologies. Nonetheless, the existing know-how of the industry and exporting capacity can be tailored to new business ventures by such notable examples as “Almiko”, “Volburg”, Hansamatrix, “SMD Baltic”, “Wiseberg Technology” and “MikroTik”.

Some of the main challenges posed by the industry participants include the necessity for highly-skilled workers, additional funding opportunities, and obsolescence management in microelectronics.

Exciting newcomers to the industry

With the ever-growing semiconductor industry, Latvia is home to two startups: “OG Sense” and “Falcon Sapphire”. Startups currently contribute to varying stages of the value chain, and some collaborate with research institutions in technology development. For example, OG Sense utilizes research conducted by the Institute of Solid State Physics, University of Latvia, which investigated the use of different polymers in photonics.

Opportunities for the semiconductor landscape

The European Chips Act is designed to incentivize the production of semiconductors in the EU and ensure security of supply. The existing world market size inching closer to 900 billion US dollars for thousands of semiconductor industry components the demand may double in the coming years. This provides a substantial business opportunity for qualified suppliers.

Bob Iofis, who graduated from Riga Polytechnic Institute, has worked in the semiconductor industry since 1992 with major Silicon Valley companies that develop technology and equipment for the mass production of microchips. He stresses that the European Chips Act provides the foundation for EU countries to secure the production of microchips within Europe: "It doesn't make sense for a small country like Latvia to develop some kind of mass production of microchips. This would be risky and prohibitively expensive. But it does make sense to participate in the ~ $900 billion component value chain supply market that has to be developed in Europe, based on the Chips Act. There are over 250,000 BOM (Bill of Materials) component names that have to be produced continuously. Each component is a product of a dedicated business that should meet the industry standards. This would be strange if Latvian government and businesses wouldn't take sufficient actions to participate."

Additionally, Lev Lapkis, Business Development Manager at RD ALFA Microelectronics with over 10 years of experience, emphasizes the necessity for Latvia to pursue advanced technologies to utilize its existing potential:

"Latvia has a heritage in microelectronics dating back to the invention of the technology. The integrated circuit (IC) was invented in 1959, and Latvia began mass production by 1962. Today, as the European Chip Act aims to bolster semiconductor production across the continent, Latvia must leverage its historical strengths to advance in cutting-edge sectors.

It is imperative for Latvian companies to prioritize their capabilities towards the development of advanced technologies, leaving the production of lower-cost electronics to markets in Asia. We must uphold our tradition of excellence by continuing to develop ICs for the industrial and aerospace market, where quality and reliability are paramount. Furthermore, in line with the European non-dependency initiative, our focus should include the development of radiation-hardened microelectronic components, primarily for the European market.

Additionally, Latvia should spearhead innovation at the intersection of microelectronics and biotechnology, particularly in pioneering areas such as organ-on-chip technology. This strategic focus will not only maintain Latvia's heritage in the semiconductor sector but also position it at the forefront of global technological advancement in critical and emerging fields.

Finally, in 2023, the semiconductor industry and its affiliated businesses employed more than 2,000 workers, but to continue its development, vastly more will be needed. Investment and Development Agency of Latvia has introduced a support programme for highly skilled workers, allowing startups to receive funding of up to 200,000 euros for the attraction of highly skilled workers. This comes at a good time, as digital technologies and sustainable practices continue to advance the demand for semiconductor technologies is increasing globally.

Currently, the semiconductor industry is led by established enterprises with a rich history; however, to further drive innovation and development, the number of startups in the semiconductor industry needs to increase. Considering the fast growth of the industry, there are opportunities available for both established and new enterprises to get a foothold in the semiconductor industry but decisions about the strategic direction have to be taken now.

Thus, by engaging in the large supply chain market and identifying clear priority industries, such as aerospace or biotechnology, there is an opportunity to implement coherent and targeted action to ensure the development of the semiconductor technology industry in Latvia.

‍If you are interested in the semiconductor industry or have ideas for the sector's development, please contact us. We would be happy to discuss your interests and ideas.