Assessing the U.K. National Semiconductor Strategy

The U.K. government released its National Semiconductor Strategy in May. The document sets out the U.K. government’s vision for the semiconductor industry in the U.K., detailing its plans for funding and other initiatives to support the sector. The strategy also details how the U.K. can be more resilient to supply chain shocks and how it can deal with the threats to national security that arise from semiconductor technology.

The U.K. government has promised up to £200 million (about €231 million) for the sector over the next three years, with the possibility of £1 billion (about €1.15 billion) over the next 10 years. Those numbers are relatively small compared with the tens of billions on offer elsewhere and therefore have predictably drawn considerable attention and criticism. Such comparisons are not particularly helpful, however. As we’ll see below, the U.K.’s objectives are somewhat different from those of other countries. For a start, it is not trying to onshore the entire semiconductor supply chain.

The U.K. government’s vision

The strategy’s overarching vision focuses on the U.K.’s main strengths: R&D, design and intellectual property, and compound semiconductors. There are no surprises here. The U.K. already has an excellent university-based research base with a strong record in spinning out successful semiconductor companies. Design and IP refers to design companies like Arm and Imagination—two huge success stories—and the many smaller companies that follow in their steps. And the compound semiconductor cluster in South Wales is well known to have world-leading R&D in that field.

On the other hand, the strategy does not address manufacturing, acknowledging that the U.K. is not going to compete with Taiwan, China, the U.S. or even Europe when it comes to silicon-based semiconductor production.

Growing the U.K. sector

The strategy pays particular attention to R&D, focusing on university spinouts and startups. It acknowledges that while funding is already available through various funding bodies, semiconductor companies must compete with other technologies. A more focused approach is needed. It therefore identifies innovative manufacturing technologies and several emerging semiconductor technologies as target areas for available funding. The focus is on university-based R&D and spinouts. There are also proposals for funding doctoral research in key semiconductor technologies.

One of the most interesting parts of the strategy for many companies is the proposed launch of a U.K. Semiconductor Infrastructure Initiative, which would research the infrastructure required to enable more commercial R&D in the U.K. The initiative includes the possibility of an “open foundry” for compound semiconductors, as well as access to chip design software and prototyping facilities. Such services are typically highly expensive to access and are often based outside of the U.K., creating problems for small and medium enterprises (SMEs) with limited resources. The initiative is currently in a consultation phase, with an initial report expected in the fall.

Another interesting proposal is for the establishment of a semiconductor incubator. The aim here is to lower the barriers to entry for startups by providing business coaching as well as access to design tools and prototyping.

Beyond this, much of the “growing the U.K. sector” strand is about nurturing skills and talent. Many initiatives are mentioned, from incentives for teachers in the sciences to support for STEM outreach programs for semiconductors. While growing the talent pool is a hugely important and valuable part of the strategy, it will be some time before semiconductor companies feel the benefits.

The strategy also mentions various aspects that were already announced as part of the spring budget. For example, a higher rate of tax relief will be available for R&D-intensive SMEs. A program designed to encourage pension companies to invest in science and technology and the government’s new investment zones were also highlighted as areas that would benefit the semiconductor sector.

Safeguarding U.K. supply chains

Like other countries, the U.K. government has acknowledged that semiconductor supply chain disruptions can have a negative impact on industry and national security. The strategy includes several provisions to address this problem. For example, the government will publish guidance to help companies prepare for future shocks to supply chains. The strategy also proposes various information-gathering exercises to look at the impact of future shortages on critical sectors and to ensure resilient supply to the defense sector.

The government will review the manufacturing requirements of critical sectors in the U.K. to establish the baseline level of manufacturing that would be required to ensure the U.K. remains resilient. The strategy also proposes several initiatives that will involve international collaboration with trusted partners to improve supply chain resilience.

Much of this resembles similar initiatives under the EU Chips Act. For example, the EU legislation includes provisions relating to European R&D and supply chain monitoring. It will be interesting to see what steps are taken to work with the EU on information-sharing schemes to maximize the benefit of these initiatives.

Protecting the U.K. against security risks

The strategy identifies two areas that are relevant to national security: the risk of U.K. technology getting into the wrong hands and being used against U.K. interests, and the threat posed by cybersecurity vulnerabilities built into semiconductor hardware.

The government has already used the National Security and Investment Act to block the sale of U.K.-based semiconductor companies to Chinese-backed entities. This was the case with the sale of the Newport Wafer Fab to Nexperia. The strategy acknowledges that the way the government has used this legislation has come in for criticism, however, and advises a more transparent approach. For example, it proposes that the government provide guidance on which parts of the sector it regards as more sensitive. The strategy also proposes the potential expansion of export controls to certain semiconductor technologies.

As for cybersecurity, the strategy acknowledges that the U.K. has a leading part to play in ensuring that hardware-based security is up to the job, given the country’s strength in hardware design and IP. The strategy proposes various initiatives to continue the U.K.’s role in this field, including convening experts from across the sector to discuss security improvements and facilitating discussions with our international partners on the issue of security.

The strategy also focuses on the RISC-V instruction set, acknowledging the U.K.’s strong position in this technology. It proposes government support for academic research and collaboration with industry to further the U.K.’s capabilities.

What does this mean for U.K. businesses?

The strategy’s vision and focus on semiconductors should be broadly welcomed by the U.K. semiconductor sector. However, there are definite winners and losers here. Universities, spinouts and startups stand to gain more than some of the U.K.’s more established semiconductor companies.

The compound semiconductor cluster in South Wales and the companies participating in the design and IP links of the supply chain will be pleased to see that the U.K.’s strengths in these areas are recognized. University spinouts and startups will be pleased to see promises of government funding for certain types of manufacturing capability and emerging technologies. The provision of extra support for academic training and tax relief for R&D-intensive startups will also be welcomed.

There is, however, a significant group of companies that may suspect there’s not much for them in the strategy’s proposals. These are the established larger companies, some of which have manufacturing capacity in the U.K. They might have been hoping for more support in terms of R&D tax relief, public sector procurement, export support and other financing and investment initiatives. While it might be argued that these companies don’t require government support, the U.K. doesn’t operate in a bubble. This part of the U.K. sector will certainly be considering carefully how initiatives in the U.S. and EU compare with what is available here.

Additionally, we will have to wait to find out more about certain aspects of the strategy. For example, the first report on the U.K. Semiconductor Infrastructure is not due until the fall. The composition of the Advisory Panel was revealed two months after it was supposed to be announced. While it takes time to get new initiatives moving, some might regard these delays as frustrating, given the pace at which other countries and regions are moving on semiconductor policy.

At this stage, it is clearly too early to say what impact the strategy will have on the U.K. sector. The early signs are positive, but how the money is deployed and how effectively the different elements of the strategy are implemented will be key to its success.

Source: EE Times Europe – https://www.eetimes.eu/assessing-the-u-k-national-semiconductor-strategy/