Back in June Imagination Technologies, together with Global Counsel, published a research report that looked at how the UK could respond to ongoing challenges in the semiconductor sector and its conclusions were drawn from a series of in-depth interviews with policymakers and industry leaders across the semiconductor space.
Semiconductors are now found in all forms of device and as technology has become more sophisticated so too has the semiconductor industry which is now dependent on a complex and interdependent value chain.
The supply-chain issues of the past two years have seen policymakers looking to develop new strategies to increase supply chain resilience and expand local manufacturing capabilities through onshoring.
The UK government is currently reviewing its strategic approach to the semiconductor industry but in its report, Imagination has concluded that a focus on reshoring is, in many respects, a ‘red-herring’ and argues that the UK should reject this approach for both strategic and economic reasons.
Speaking to New Electronics David Harold, Chief Marketing Officer, Imagination Technologies, said that “While industry commissions a lot of reports, too often what’s delivered is a consensus view and I think you end up with something that is a little bit tame. We’ve sought to address some of the fundamental issues confronting the industry here in the UK because many of the people making policy don’t truly understand the landscape.”
Harold points to the growing calls for reshoring manufacturing to protect manufacturing and suggests that this should be dismissed.
“Too many politicians are ignoring the reality. Hopefully what we’ve recommended is doable and builds on the UK’s existing strengths.”
As Harold points out the costs of onshoring semiconductor production to the UK is simply not viable given the capital that’s available here in the UK and the economies of scale that would be required.
Spain has just recently committed $13bn towards investing in new semiconductor factories by 2027, funded by the European pandemic relief fund, while Samsung is set to invest a massive $356 billion in the next five years to accelerate growth in semiconductors and other next-generation technologies,
Furthermore, this strategy, according to Harold, would also require dependence on domestic production and could work against the UK’s existing comparative advantage.
“While onshoring could reduce the UK’s dependence on imports, such a strategy would simply shift the nature of the dependence away from trading partners and onto the UK’s domestic production base,” says the report.
And while that may have some advantages i.e. the UK not being at risk from supply disruptions stemming from trade restrictions that could block semiconductor exports to the UK there are numerous downsides.
The UK’s size means it would naturally end up depending on a smaller range of domestic suppliers exposing it to a greater risk of isolated disruptions and it would make it harder for the UK to ramp up production in the case of demand surges.
Instead, the report suggests that the UK should double down on areas where it has a competitive advantage, particularly in a post-Brexit environment.
“Onshoring and building manufacturing capacity here is expensive and unlike Silicon Valley the UK simply doesn’t have access to the capital to deliver on that,” said Harold. “We’re an IP company and while we need manufacturers, there’s very little chance of the UK government providing the funds to drive this but there are a bunch of things that the UK is good at and on which we should focus on.”
While dismissing such an approach here in the UK, Harold thinks that Europe’s focus on manufacturing is actually a good idea.
“It’s sensible as there are a lot of businesses based there that supply capital equipment to the semiconductor industry. And I do think that that in the current geopolitical climate there’s something to be said about ensuring that not all your manufacturing is carried out in Asia, but in terms of the money that is being allocated – new money – it’s not a lot, just $300m. That money will also be spread across Europe with funds allocated to regions in Portugal, Spain and Germany for example, and these will be political driven investment decisions that might not actually be the best thing for the industry as a whole.”
As Imagination’s report makes clear investing in cutting edge wafer fabrication requires significant capital investment and extensive process
knowledge and as chips become more advanced companies will increasingly need to be linked into the wider ecosystem with material and equipment suppliers as well as access to R&D.
A microchip strategy
Imagination calls for the UK to have a microchip strategy that is based on three core aspects: enhancing research & development, promoting and protecting intellectual property and championing diversification.
According to Chris Porthouse, Imagination’s Chief Product Officer, “The UK is a clear leader in Europe when it comes to semiconductor design. In fact, it has a unique science and technology ecosystem that has helped foster over 110 design firms.”
By contrast the UK has only a limited presence in manufacturing and there are just 23 fabrication plants spread across the UK and they typically tend to be producing older style (>100nm) chips and are generally linked to specific end uses or products made in the UK.
Where the UK continues to punch above its weight is in design and specifically the generation of cutting-edge semiconductor IP where it is home to the likes of Imagination, Arm and Alphawave.
Porthouse also points to government institutions like the new ARIA (Advanced Research and Invention Agency) and British Business Bank that could channel new private and public investment into the most cutting-edge areas of semiconductor R&D.
“Another area of focus is trade diplomacy where the UK should work with trusted, like-minded partners who have common approaches to trade policy and IP protection,” adds Porthouse.
However, when it comes to IP protection Porthouse warns that while protecting IP is important, and the issue of national security comes into play here, he suggests that it needs to be used carefully.
“With IP there’s a lot of discussion around the need for protectionist policies and we need to be careful. If we are over-zealous in applying protectionist policies, then it could have a real impact on the development of new businesses here in the UK. Start-ups and those financing them look for an exit strategy – and if the prospect of being bought by the likes of Google and Meta are blocked, then there’s a risk that new business start-ups could be discouraged.”
Shared value chain
The events of the past two years have meant that the UK, like many other countries, needs to consider its strategic approach to ensuring that its domestic industry maintains a reliable supply of semiconductors.
Imagination argues that the UK should not be looking to secure supply through domestic onshoring or any attempt at self-sufficiency as the costs are prohibitive.
Instead, its calls for the UK to maximise the benefits of its own existing strengths in the semiconductor value chain which lie firmly in the creation of the critical IP that underpins it.
As part of a semiconductor strategy, the UK should develop a set of criteria for identifying trusted, reliable, like-minded partners in a shared value chain with a shared common approach to trade policy and IP protection.
But if the UK is to succeed it also needs to ensure that the UK attracts the best global talent in the sector, that it uses UK government institutions like ARIA to drive the most cutting-edge areas of design R&D for semiconductors, while the creation of a bespoke fund under the oversight of the British Business Bank or British Patient Capital could close the existing funding gap and enable early-stage research to be commercialised in the UK.
Beyond that the UK should also be looking to enforcement and cooperation when it comes to semiconductor IP protection and should look to play a greater role in educating industry on how to commercialise and license its IP. It should also look to pioneering a common approach to export controls that recognises controls must be targeted, proportionate and justifiable.
Consequently, the UK should be looking to chart a course that looks beyond onshoring and seeks to foster resilience in a sustainable and competitive way.
- The future of the UK’s semiconductor strategy. An alternative to onshoring: strategic interdependency