Britain has likely missed the boat for having a semiconductor industry
Report concludes government needs to implement a chips strategy now – like the rest of the world
The UK is missing out on investment in the semiconductor industry, according to a House of Commons Committee report, which said this is putting business in the country at risk as other nations seek to build greater resilience into their own supply chains.
The report finds that while UK industry has strengths in some areas, the country does not have a complete end-to-end supply chain and is vulnerable to any future disruption in global supplies. It calls on the government to set out its semiconductor strategy and put in place a new sector deal to provide funding for UK semiconductor investment.
As Reg readers are well aware, semiconductors are a vital ingredient in modern electronic systems, not just the advanced very large-scale integration chips used in computers and telecoms infrastructure, but a variety of semiconductors are increasingly seen in other products such as vehicles and household appliances.
The report, The semiconductor industry in the UK, is the result of an inquiry started by the cross-party Business, Energy and Industrial Strategy (BEIS) Committee in May. It was sparked by the global shortage in semiconductors caused by the pandemic, which led to widespread disruption in many industries.
Small and niche
It notes that Britain has a comparatively small semiconductor industry by comparison with the US or countries such as Taiwan, which is putting it mildly as the UK accounts for just 0.5 percent of sales of semiconductors around the world.
That isn't to say that the UK doesn't have strength in areas such as design, intellectual property, and compound and advanced material semiconductors, with chip designer Arm being a key example. But there is no complete supply chain, and as one witness told the BEIS Committee, the UK's status in the global semiconductor industry "is very high in terms of our capability. In terms of our footprint, it is very low at the moment."
Some readers may be surprised to learn that Britain has approximately 25 fabrication plants across the country, but these do not represent the "full range of manufacturing capability" and most of the equipment is good only for "legacy nodes" greater than 180nm, delivering products for niche applications and specialized use cases.
There are no fabrication plants in the country capable of producing the most advanced silicon semiconductors, defined here as a node of 28nm or smaller, and the report states there is "little immediate prospect of such facilities being constructed in the UK, given the very high costs involved."
A lack of investment over the last 20 to 30 years has led to the UK semiconductor industry forming into specialized clusters in different areas of the country, each with its own end product and method of manufacture, making it difficult to diversify by applying the manufacturing equipment to other purposes.
But the report claims that these well-developed clusters put the country in a good position to capitalize on growth; that there is the ambition and potential to expand these sites, both in their current location and beyond, but that this can only be achieved with large-scale investment, as seen in the US.
The report notes the efforts being made elsewhere in the world in order to strengthen sovereign capabilities over more of the semiconductor supply chain and diversify the location of semiconductor manufacturing facilities (much of the global supply of the most advanced chips comes from Taiwan and Korea).
In particular, it highlights the US CHIPS Act, passed earlier this year, which unlocks $52 billion in support for chip production in America, through manufacturing grants, research investments and other areas.
Also noted is the EU Chips Act, announced in February, which seeks to provide €43 billion ($44.8 billion) in funding intended to boost research and development and deliver greater self-reliance in semiconductor supplies across Europe.
The UK lacks any such strategic program. As the summary of the report states, the Department for Digital, Culture, Media and Sport (DCMS) had planned to publish a semiconductor strategy "in autumn 2022," but this has yet to appear. The BEIS Committee calls on the UK government to "lose no more time and publish its semiconductor strategy immediately."
National interest is never far away in issues like this, and the report says that dependence on external supply is a risk for any business, but that in certain sectors a dependence on semiconductor supply from outside the UK could pose more serious threats.
CSconnected, which represents organizations in the Welsh semiconductor cluster, told the committee: "There are numerous national security concerns and vulnerabilities within the current UK semiconductor supply chain." It said these range from minimal control over most of the manufacturing of semiconductor chips within the UK, to outsourcing of the most sensitive defense-related chip designs to overseas manufacturers, posing "a real and present threat to the UK's national security."
- Intel: The economy is bad right now, but we still need more fabs
- US chip war could hurt the West as Beijing moves to ramp up its own industry
- French cloud operator OVHcloud gets datacenter funds from EU lending arm
- EU still getting its act together on European Chips Act funding
However, the report also notes that "it would not be realistic for the UK to attempt to onshore the entire semiconductor supply chain in all its forms." Instead, any solution for increasing resilience and reducing dependence should focus on building on existing strengths and co-operating with trusted, secure long-term partners.
Intel's UK country manager, Trish Blomfield, told the committee that there is the potential for a "reinvigorated European supply chain" that would offer greater resiliency and could "allow for a made in Europe and designed in Europe supply chain as well."
Remember the EU?
The committee says that the UK government should work more closely with its allies in the EU, US and elsewhere to safeguard security of supplies, both of finished products and of the materials needed for production in the UK.
It also calls on the government "to consider whether the above recommendation… can be effectively delivered by requesting that the UK be invited to take part in relevant parts of the EU-US Trade and Technology Council." The TTC is a forum set up to facilitate transatlantic cooperation on global supply chain issues, with semiconductors a high priority.
Some of those who gave evidence to the committee said that while DCMS is notionally taking the lead on producing a semiconductor strategy, there are several other government departments with a stake in proceedings, and proposed that there should be a single point of contact between government and industry. CSconnected suggested that an Office for Semiconductors might be created.
In the absence of the official semiconductor strategy, the BEIS report offers suggestions on what should be done. This includes identifying where Britain has areas of strength and areas of weakness in the semiconductor chain, where greater resilience is needed, and where the UK should be focusing its efforts.
The strategy should also identify opportunities for the UK semiconductor sector, and set out a plan for developing these, highlighting risks and how to mitigate them, it suggests.
When it comes to fostering growth in the semiconductor industry, the government should consider offering incentives for research and development (via grants or tax credits), developing an environment conducive to private investment, and encourage greater inward investment from overseas.
But what about government-led funding? It seems like the money is there; the report states that the government announced in March that £39.8 billion ($47.7 billion) had been allocated for investment in research and development from 2022 to 2025, with spending set to increase to £20 billion a year by 2024–25. The government also said that total spending on research and development would reach 2.4 percent of GDP by 2027. Of course, this covers all research, and not just semiconductors.
'They've just discovered that semiconductors are important'
Gartner vice president for semiconductors and electronics Richard Gordon told us of his frustration at reading the report, saying: "It's like they've just discovered that semiconductors are important, and that this is a big problem for us."
"Successive governments have failed here, and they haven't learned anything over the last 30 years or so," Gordon said, dismissing the £1 billion spent on funding semiconductor research since 2006 mentioned in the report as "chickenfeed."
"We don't have a long-term industrial strategy, and there needs to be some sort of strategic plan," he told us. "This report seems to be saying that these are our only choices now, so let's do that."
Whatever happens, the report concludes that the UK government needs to pull its finger out and implement a semiconductor strategy.
Rina Pal-Goetzen, representing the US Semiconductor Industry Association, told the committee earlier this year that decisions were being made "right now" by companies on where to locate manufacturing over the next five to 10 years, and that it was "very urgent" that countries should consider whether or not they wanted to be part of the supply chain. ®