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May 19, 2023

Fears government semiconductor strategy will not protect UK chip supply chain

A new blueprint for the chip industry falls short in key areas, and may leave the UK exposed to problems in future, experts fear.

By Matthew Gooding

UK chip industry figures have given a cautious welcome to the government’s long-awaited £1bn semiconductor strategy. But some believe it falls short in key areas, and will do little to protect the supply of key components in the event of another global chip shortage.

The new UK chip strategy is designed to help chip manufacturers like Pragmatic (Photo courtesy of Pragmatic)

The strategy, which has been two years in the making, was launched today. It details a £1bn finance package, delivered over ten years, which will back a range of measures designed to secure the UK’s advantage in this globally important sector and meet three key objectives: growing the domestic sector, mitigating the risk of supply chain disruptions and protecting national security.

It has been designed in response to the semiconductor investment strategies developed in the US, Europe and China. Chip supply has become a key geopolitical issue since the 2021 semiconductor shortage, which disrupted many industries, and the ongoing threat of China invading Taiwan, where many of the world’s leading-edge semiconductors are produced by manufacturing market leader TSMC.

But experts who spoke to Tech Monitor expressed some concerns the strategy may not achieve its key objectives.

Will the UK semiconductor strategy help growing chipmakers?

The full strategy document has yet to be published, but the government announcement outlines a host of measures to help chip start-ups and R&D projects. There is less detail on how scale-up companies will be supported in their growth plans, and many of these businesses have said they will consider moving abroad if help is not forthcoming from Whitehall.

One such company is Cambridge-based Pragmatic, a manufacturer of flexible semiconductors. Its founder Scott White told Tech Monitor that while he welcomed the publication of the strategy, he was awaiting “more detail on the specifics”. White says: “Scale-ups today face evermore enticing opportunities from abroad and the government particularly needs to address the very prominent later-stage funding gap in the UK, and quickly.  We are keen to understand the details that underpin this strategy and are looking forward to working with the government to build the UK into a global force to be reckoned with in semiconductor manufacturing.”

Dr Simon Thomas, founder and CEO of Paragraf, which is pioneering the manufacturing of graphene-based chips, said that “attempting subsidies and tax incentives – while generally applaudable – will not enable the UK to keep up with China, the US, Taiwan, South Korea and Europe which have all come out with much larger, earlier delivered, multibillion-dollar support packages, which the UK just cannot match”.

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Thomas, who told a parliamentary hearing last year that his company had received overtures – and offers of funding – to move to the US and other countries, says: “The efficacy test of this strategy lies in whether the government can implement plans for a supportive, attractive investment environment and if the UK can take advantage of the once-in-generation opportunities that pioneering companies are creating with new technologies that are not only leading the world, but could disrupt the traditional semiconductor industry and place the UK as a leader rather than a follower failing to catch up.”

Government must protect valuable chip IP

The strategy announcement says the government will focus on building on the UK’s existing strengths in semiconductor design, compound chips – which combine silicon and other materials to achieve improved performance – and R&D.

Britain’s most important semiconductor companies, such as Arm and Imagination, are predominantly focused on chip design, and Andrew Thompson, an intellectual property lawyer at law firm EIP says the lack of focus on IP in the strategy is “disappointing”.

He says the UK’s new “Hiroshima Accord” with Japan “might in fact be of more consequence to many semiconductor companies” than the strategy, arguing that it “highlights the importance of ensuring that collaborative R&D, and therefore intellectual property, is structured in a way that serves the interest of the UK’s relatively small-sized sector and its reliance on allies in terms of innovation”.

Thompson says: “Semiconductor companies need to carefully consider whether collaborative IP ownership provisions are right for them and be conscious of the risk of know-how leaking across borders, even when confidentiality provisions are written into agreements.

“It is disappointing that intellectual property, which is meant to be an important area of semiconductor strategy, has so far been largely ignored today – more so given the UK’s strength in core IP development. While more detail might be included in the official strategy document, there are several ways in which the current system can be streamlined and made more efficient. These include fast-tracking the process of obtaining patents in the first place and introducing tax incentives for companies generating profits from semiconductor-related inventions specifically.”

Will government semiconductor strategy boost UK chip supply chain?

The UK currently manufactures very few of its own semiconductors, and the strategy announcement says it will “increase its cooperation with close partners, working together to manage national security threats and driving growth in the sector, while championing international cooperation to help develop a coordinated approach to supply chain resilience”.

But Dr Elizabeth Stephens, founder and managing director of Geopolitical Risk Advisory, says such measures may not be enough to protect chip supply in the event of another shortage. “The UK does not have a semiconductor manufacturing capability of any scale and the government has apparently decided that it never will have,” Stephens says.

She said the strategy has involved the “selection of areas in the semiconductor value chain for development where the country has expertise, such as chip design, but that don’t require the investment of billions of dollars”, and adds that while “this may be prudent given the vast sums of money required to develop fabs… it will leave the country exposed in the event of future disruption to the supply chain”.

Stephens says: “In the event of future disruption of Asian semiconductor supply chains, the UK will run out very quickly and, as we are no longer a member of the EU, we will be unable to rely on our European counterparts for support.”

Read more: Can the US hurt China with semiconductor sanctions?

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