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MPs call on government to invest in UK semiconductor production

UK semiconductor production

MPs have warned that the UK risks “falling behind” other countries in safeguarding semiconductor supply and called on the government to forge partnerships with other countries and support the construction of new production facilities in Britain.

A report published by the Business, Energy and Industrial Strategy Committee found that the UK is “missing out on inward investment” that is leaving the country behind globally in the semiconductor space.

The report comes in the wake of the government blocking the acquisition of Newport Wafer Fab by Netherlands-headquartered and Chinese-owned semiconductor manufacturer Nexperia on national security grounds.

The cross-party committee said it will look at the decision once the appeal process has concluded.

The government should consider an “open fab” in South Wales where any company could manufacture semiconductors, the report recommended.

“The idea of creating an ‘open fab’ in south Wales is a good example of the type innovative, regionally-led approach the UK needs, but it must be part of a wider, strategic investment plan which also includes international partnerships with the likes of the US and Taiwan to support the semiconductor industry at this critical moment,” Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates told UKTN.

Semiconductors are materials housing the electronic circuits powering devices ranging from smartphones to fridges. Globally, the UK lags behind other nations in semiconductor production. Britain has approximately 25 fabrication plants, with a number of these university-based fabs while the majority of equipment is “relatively old”, the report said.

The government should be “facilitating the design and construction of new fabs” as well as partnering with strategic allies, such as the US and Taiwan, to attract inward investment, the committee recommended.

“It is not clear to us that the support or attention currently offered by government is at anything like the scale which is needed to secure our supply of semiconductors and to deliver the future prosperity of the semiconductor industry,” the report noted.

Governments in other countries have been stepping up their investments in semiconductor production following soaring demand for silicon during the pandemic.

The majority of semiconductor production takes place in Asia, led by Taiwan. However, analysts have flagged concerns that supply from Taiwan could be threatened by rising tensions between China and the West.

The US has invested $28bn into boosting its semiconductor capacity as part of the CHIPS Act. Meanwhile the European Union has put forward similar plans to “mobilise more than €43bn of public and private investments”.

“Without similar levels of domestic investment, chip manufacturers will continue to be a target for foreign acquisition, jeopardising UK digital sovereignty and its place in the global semiconductor supply chain” added Shaw.

A long-overdue UK semiconductor strategy has been two years in the making by the department for Digital, Culture, Media and Sport (DCMS). The BEIS committee said this should be published “immediately”.

UK semiconductor production falls behind

The UK accounts for just 0.5% of semiconductor sales globally. But over 90% of silicon semiconductors created in the UK are exported, the report found.

While the UK semiconductor industry is small compared to other countries, it has leading startups, scaleups and established companies in areas including design and intellectual property.

Cambridge-based Arm designs processors that power many of the world’s smartphones and computers.

Cambridge GaN Devices, which recently secured a $19m (£15.9m) Series B funding round, designs transistors that the company claims can make electronics greener by improving energy conversion efficiency.

The BEIS committee recommended additional funding or guarantees to support the industry through the Compound Semiconductor Applications Catapult, Innovate UK or the British Business Bank.

Committee Chair Darren Jones said: “The government is putting UK plc at significant risk by failing to take action in support of the semiconductor industry.

“Other countries are investing in the resilience of their semiconductor supply chains yet Ministers in the UK can’t even publish their semiconductor strategy on time.”

A shortage of semiconductors since the start of the pandemic, caused in part by supply chain disruption, drove up the price of microchips and spurred investment into manufacturing facilities.

Globally, the semiconductor industry is worth more than $500bn. However, analysts predict that this trend is now cooling. Global semiconductor revenue is projected to decline 3.6% in 2023, according to a report published today by research firm Gartner.

“The short-term outlook for semiconductor revenue has worsened,” said Richard Gordon, practice vice president at Gartner. “Rapid deterioration in the global economy and weakening consumer demand will negatively impact the semiconductor market in 2023.”