UK Government Prays That Size Doesn't Matter As It Chips In £1B For Semiconductor Sector

UK government has published its long-awaited semiconductor strategy, promsing a disappointing £1 billion ($1.24 billion) to be focused on areas seen as the country's strengths – chip design, R&D and compound semiconductors.

Expected at least a year ago, the newly announced plan aims to safeguard supply chains from disruption and protect against national security risks, the government said.

The official strategy coincided with the G7 Summit in Japan, where Prime Minister Rishi Sunak and Japan premier Fumio Kishida unveiled a global strategic partnership on semiconductors between the two nations.

The British government's newly published strategy document [PDF] states that focusing on R&D, design and intellectual property (IP), plus compound semiconductors, is "targeted and value for money" and will secure advantages for the UK in nascent technologies such as AI, high-performance computing, and quantum.

However, it won't have escaped the attention of Reg readers that the Biden administration is ponying up $52 billion in subsidies and other incentives to boost domestic semiconductor industries in the US, while next door in Europe, the EU has agreed a €43 billion ($47 billion) funding plan to attract chipmakers to set up facilities there and secure European supplies of chips.

In contrast, the UK government said it will invest up to £200 million ($248 million) over 2023-25 to "improve industry access to infrastructure, power more research and development and facilitate greater international cooperation." This will grow to £1 billion over the next decade.

In a foreword, Chloe Smith, Secretary of State for Science, Innovation and Technology, said that semiconductors are one of the "five technologies of tomorrow" along with quantum, AI, engineering biology and future telecoms, and are critical to the UK's economic and national security.

"The UK Strategy is rightly differentiated from the approaches other countries are taking to expand large-scale silicon manufacturing, instead focusing on what is best for the UK," she explained, claiming the Department for Science, Innovation and Technology (DSIT) had worked closely with industry and decided the country is better positioned to pursue "alternative opportunities" within the sector.

It has been widely recognized that Britain is not in a position to compete against countries like Taiwan or the US in terms of large-scale semiconductor fabrication capacity, which would require a massive investment amounting to tens of billions of pounds, and so the more targeted approach taken by the government has been welcomed by some.

Julian David, CEO of trade body techUK, said that by doubling down on the UK's strengths while aiming to tackle barriers such as access to talent, infrastructure, and supply chains, the strategy does have the opportunity to "fire the starting gun" on a better future for UK semiconductors.

But he warned that any further delays in implementing the strategy would risk Britain falling further behind in this valuable global sector.

"This will make delivery key and it is vital the government moves quickly to turn this strategy into action. Strategic allocation of the funds for this strategy is now of utter importance and we stand ready to work with government to ensure that the benefits of the semiconductor strategy come to fruition," he said.

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James Williams, head of Telecoms, Media and Technology at NCC Group, told us it was reassuring to see that consideration was being given to how the UK needs to work with other nations on semiconductor supplies.

"The UK's semiconductor industry will never be wholly sovereign," he said. "Completely onshoring chip production is unlikely to be economically viable. We must therefore identify and build partnerships with nations who can produce them with the required levels of trust to support the UK's domestic markets, whilst promoting and enhancing areas where the UK can take a leading position such as R&D and the commercialization of British intellectual property."

But others expressed dismay at the level of funding being offered.

"While it's good that the government is beginning to focus on this, it is not nearly enough to be viable if the UK wants to be one of the main global players in this space," said Andrew Buss, IDC Senior Research Director in Europe.

"The £1 billion is way too small to attract significant interest in building modern fabrication facilities and the UK status outside of the EU single market means that potential tariffs and rules of origin requirements would make exporting the manufactured components more challenging and expensive. It is also not clear what tax incentives would be provided to make the long term investment worthwhile."

Amelia Armour, a partner at Amadeus Capital Partners, which invests in semiconductor startups, told us: "the level of investment announced for the next two-year period is disappointing, especially considering the UK needs to try to keep pace with the investment levels announced as part of the EU and US Chip Acts."

The £200 million over the next two years "won't achieve much" and will need to be allocated in a very targeted way to have impact, she claimed, adding that "the strategy also comes across as lacking compared to the £2.5 billion which has been announced for quantum technologies."

Last year, a House of Commons Committee report said the UK was missing out on investment in the semiconductor industry because of the lack of a strategy, and identified the country's strengths in design, IP, and compound semiconductors.

At the time, Gartner vice president for semiconductors and electronics Richard Gordon said it was as if the government had "just discovered that semiconductors are important," and that the report seemed to be saying "these are our only available choices now, so let's do that." ®