Brit chip industry wonders if UK budget will put its money where its silicon is

Don't hold your breath

Brit tech industry association Techworks wants to see more support for the UK semiconductor sector in this week's budget to help the nation's chip companies better compete on the global stage.

While the mainstream media speculates endlessly about tax cuts, Techworks calls on the Chancellor of the Exchequer – the UK finance minister – to address in tomorrow's annual budget the lack of investment that chip companies need to grow beyond the startup phase in Britain.

The UK offers the lowest level of incentives to its semiconductor industry among the G7, the organization claims, meaning that overseas operations are effectively being subsidized to unfairly compete against British chip companies.

The nation punches above its weight in research and innovation via universities and early stage startups. Yet there is a lack of funding to support later stage growth of companies to scale up and become globally competitive, Techworks says, which often leads to promising businesses being snapped up by foreign investors, with the technology and jobs being lost abroad.

Among the measures Techworks would like to see are changes to capital expenditure rules to allow semiconductor companies to claim back more strategic investment spending. At present, expensing R&D Tax Credits is capped at 25 percent against profits and only for new equipment, it claims.

Also called for are efforts to stimulate investment by the creation of a matched funding or lead investor scheme in support of vital upgrades to infrastructure and facilities, and for government institutions to lead the financial markets in improving access to long-term capital that will allow chip companies to scale up.

Techworks CEO Charles Sturman said UK chip makers need a level playing field to compete and this means support and access to finance for the necessary expenditure to remain competitive.

"The Chancellor's Budget is an opportunity for the government to show that it recognizes the challenges faced by the UK's semiconductor sector and is prepared to get behind it to support this strategic industry, as was indicated in the government's own strategy published last May," he said.

That long overdue semiconductor strategy promised £1 billion ($1.26 billion) in funding over the next decade to be targeted at areas seen as the country's strengths, such as chip design and IP, R&D, and compound semiconductors.

This was greeted with disappointment by many, when compared with the billions being poured into subsidies and other incentives by the US and EU to boost their local semiconductor industries.

However, some voices, including Techworks' own Semiconductor Leadership Group, broadly backed the strategy as being a tentative step in the right direction, while other experts said the UK was right to pick its fights instead of simply pumping money into massive chipmaking subsidies.

Techworks says that while the UK does not try to compete with the high volume chip manufacturers like TSMC in the Far East, it has world-class companies that export millions of chips targeting important new markets including power electronics for vehicles, 5G radio communications, photonics, and MEMS (micro electromechanical systems) for sensors in fields such as life sciences, the automotive industry, and robotics.

In other words, the UK has a diverse semiconductor sector that has the potential for greater success with the right government support.

However, as if to highlight the government's poor record in this area, news broke this week that it has finally approved the sale of Newport Wafer Fab, the UK's largest semiconductor manufacturer, to Vishay Intertechnology, based in Pennsylvania, after its former owners were ordered to sell.

A former Inmos manufacturing site, Newport Wafer Fab was sold to Dutch semiconductor outfit Nexperia in 2021. However, Nexperia itself was already owned by Wingtech Technology, which is listed on the Shanghai Stock Exchange. Circa 30 percent of Wingtech shares were reportedly traced back to the Chinese government), causing UK government to unpick the sale using its powers under the National Security and Investment Act (NSIA).

The move means that despite a period of crippling uncertainty and warnings from Nexperia that forcing the sale of the facility would have a devastating impact on Newport's financial position, the site has ended up in foreign ownership anyway. ®

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