The Department for Science, Innovation and Technology has published the highly anticipated National Semiconductor Strategy (NSS), setting out plans for the UK to secure its position as a “global science and technology superpower”. The NSS forms part of the wider ‘International Technology Strategy’ (ITS) which was published earlier this year, under which the UK Government identified semiconductors as a ‘priority technology’ alongside quantum, AI, engineering biology and future telecoms.
Background
The NSS outlines the Government’s plan to ‘double down on design, research, and advanced chip leadership’, with a view to rejuvenating an industry that has been battered by supply chain disruptions and geopolitical uncertainties.
The UK Government has committed to allocating up to £1 billion to chip companies over the next decade, with £200 million to be offered to British chip companies between 2023 and 2025, and the remaining £800 million to be distributed by the end of 2033.
The “strategic investment” is underpinned by three key objectives:
- Growing the domestic semiconductor sector – the Government plans to focus on building on the UK’s existing strengths in design, compound semiconductors and research and development (R&D).
- Mitigating the risk of supply chain disruptions – in response to the chip shortage and global supply disruptions, the Government proposes to work collaboratively with industry and international partners.
- Protecting national security – as security risks arising from semiconductor technologies increase, the Government considers the need for the UK to respond proportionality, such as by continuing to support programmes like Digital Security by Design, which aims to ensure semiconductors can be more resilient and secure in the face of growing cyber threats.
According to the Government, the NSS builds on the support already provided to the semiconductor industry. This includes £539 million in grants for research and £214 million directly to SMEs in the sector across the last 10 years, as well as funding 450 PhD students since 2017.
A realistic commitment?
One of the key questions raised on release of the NSS is whether the pledged amount is sufficient.
The UK’s commitment of £1 billion is considerably less when compared to the substantial investments made by other countries. For example, the United States’ Chips Act has set aside a staggering $52 billion to finance research and development, support domestic manufacturing, and incentivise businesses to establish semiconductor facilities within the country. Similarly, China has also made significant investments in its semiconductor industry, reportedly injecting $143 billion into it. The European Union has also taken significant strides to bolster its semiconductor ecosystem, having recently unveiled its own European Chips Act, which allocates a substantial €43 billion towards this effort.
As countries scramble to boost production to avoid what the European Union’s competition commissioner, Margrethe Vestager, described as a “subsidy race” over semiconductors, some critics, such as Amelia Armour, partner at Amadeus Capital Partners, a UK venture capital firm that invests in chip start-ups, has expressed concerns. In her opinion, the UK “needs to try to keep pace with the investment levels announced as part of the EU and US Chip Acts,” and that the investment needs to be “allocated in a very targeted way to have impact.”
But as supporters of the NSS have flagged, there are two important factors to consider when comparing investments towards this sector – the GDP and objectives of the country. Gerard Lyons, a business researcher at the Centre for Policy Studies think tank, argues that the Government is “right to acknowledge that the UK simply cannot afford to compete in the global subsidy war”. Instead, the NSS highlights that the UK is not trying to compete on chip manufacturing, but rather “will focus on growing the UK’s unique and already world-leading strengths in compound semiconductors, research and development, intellectual property and design.” This approach seems to be in response to the calls of key industry leaders, including Arm founder Hermann Hauser and representatives from Global Tech Advocates & Tech London Advocates, who in a letter to the Prime Minister outlined the importance of investing in R&D to help the UK maintain an edge in semiconductor innovation.
But as Seiko Hidaka, a legal director at Gowling WLG, points out in her interview with The Engineer “the key is horizon scanning and being strategic”, and recognising that “no one country can ‘do semiconductor’ on its own.” Therefore, while NSS may assist the UK in building upon its existing strengths, it cannot reach “global science and technology superpower” status without developing strong alliances with global chip manufacturers. As such, the newly announced semiconductor partnership with Japan, a major player in the global semiconductor industry, with companies like Toshiba, Sony, and Renesas Electronics, is step towards international knowledge and skills exchange.
The partnership also pushes forward the NSS’s objective of mitigating the risk of supply chain disruptions by diversifying the UK’s supply chain, pivotal for the sector as tensions between China and Taiwan, who produce more than 60% of the world’s chips, worsen.
The semiconductor industry has been heavily disrupted and demand far outweighs supply for a number of ‘connected’ industries.
Speak to Alexandra Brodie or David Brennan, co-chairs of our global Tech team, to help mitigate the risks posed by disrupted supply chains and better understand how to take advantage of connectivity in your industry.
