Chip-shape? Assessing the UK’s long-awaited semiconductor strategy

semiconductor strategy

Following mounting pressure from the UK tech and manufacturing industries, the government finally released its long-awaited national semiconductor strategy in May, dedicating £1bn to safeguarding chip supply chains and driving growth in the sector.

The new strategy provides much-needed clarity at a time when the semiconductor industry is still recovering from major supply chain disruption during the pandemic. The ongoing global chip shortage provides a keen reminder of how important semiconductors are to our everyday lives, powering everything from smartphones to ATMs and household appliances.

Chips also have a vital role to play in driving growth, with the global semiconductor market forecasted to reach a total market size of $1tn by 2030. At a critical moment for the future of the UK’s economy and tech sovereignty, there is no doubt that leaders need to take swift action to deliver on the government’s plans and deploy funding.

However, it’s also an important time to reflect on the strengths and weaknesses of the government’s proposed approach and draw attention to additional action the UK will need to take if it is to become a reputable leader in the field of semiconductor design and production.

Sufficient funding?

One of the key questions industry leaders have asked themselves in the past weeks is whether the level of funding promised by the government will be sufficient. Some industry experts described the funding amount as “disappointing“. After all, Washington’s Chips Act is worth $52bn and Europe has put €43bn behind its Chip Act.

While £1bn may seem very modest in comparison, it looks somewhat more reasonable when taking into consideration how objectives differ between countries. Where the US and the EU plan to heavily subsidise high-end chip manufacturing, the UK is aiming to support the parts of the industry where it could feasibly gain a competitive advantage and become world-leading: chip design, research and development and the fabrication of compound semiconductors.

This is a sensible approach considering the UK would struggle to compete in a subsidies ‘arms race’ with countries with much larger GDPs, such as the US or China. Given that compound semiconductors play a significant role in the production of solar technologies and quantum computing, both of which are high-growth verticals that will likely create many jobs in the future, investing in this crucial technology will be key to sustainable economic growth across the country.

The strategy’s focus on supporting research and development is another one of its key strengths. In a letter to the prime minister in February, key industry leaders – including Hermann Hauser, founder of Acorn, the company that spun out Arm, and representatives from Global Tech Advocates & Tech London Advocates – outlined the importance of investing in R&D to help the UK maintain an edge in semiconductor innovation. It is good to see that the government has taken these calls seriously.

Many international semiconductor companies continue to look for places where there is both strong R&D as well as talent, and the UK should position itself as a ‘go-to’ destination. This approach will bring more international investment into UK R&D, and, over time, there will be a corresponding ‘knowledge transfer’ benefit if the UK is home to both local and international R&D talent.

Forging international partnerships

While strategic funding can help the UK to make strides in innovation and design, it is unlikely to build significant manufacturing capabilities in the near future. This means that developing strong alliances with chip manufacturers across Europe, Asia and North America will be crucial.

The newly announced semiconductor partnership with Japan will go a long way towards diversifying the UK’s chip supply chain and further encourage an international knowledge and skills exchange.

The semiconductor strategy recognises the importance of international partnerships, but it remains relatively vague when it comes to detailing how these alliances will be initiated. While the government has been promising a stronger trade partnership with India, for example, a promised trade deal has been repeatedly delayed and talks have reportedly made very little progress.

In the post-Brexit era, it is critical that the UK makes these trade talks, as well as other international partnerships, a priority, and now add a ‘chips component’ to the digital trade discussions.

Building a strong talent pipeline

Demand for tech talent is increasingly outstripping supply in the UK as tech vacancies reached their highest level in years in early 2022.

Recent figures show that only 1% of those employed in the UK tech sector are immigrants, emphasising the struggle of attracting skilled workers from abroad. While the government’s semiconductor strategy promises support for enhanced industry learning with a focus on promoting relevant skills in fields like electronic engineering and computer science, more still needs to be done to attract skilled tech workers and nurture the homegrown talent the chip industry needs.

The UK’s strong university system is a key asset here with courses and research-based programmes relating to the semiconductor sector targeted as a key priority for higher education.

Becoming a semiconductor superpower

In light of the recent blow to the UK tech community when semiconductor designer Arm chose to list on the Nasdaq rather than the London Stock Exchange, swift action needs to be taken to make the UK an even more attractive place to do business, secure investment and strengthen its position as a tech superpower.

The national semiconductor strategy furthers this aim by strategically supporting existing industry strengths and creating an environment that is conducive to innovation. The government, however, still needs to respond in the autumn with its approach to manufacturing support for semiconductor startups and scaleups.

Going forward, it will be vital that funding is made available as soon as possible to enable the sector to build vital capabilities, while prioritising the establishment of international partnerships and a strong tech talent pipeline.

Only then will the UK be able to stake a serious claim as an international leader in semiconductor design and innovation.

Russ Shaw CBE is the founder of Tech London Advocates & Global Tech Advocates, and a regular UKTN columnist.