While unexpected, the semiconductor has become a well-known – albeit notorious – topic thanks to conditions imposed by the pandemic.
The sudden shortages of chip-enabled technologies became difficult to ignore for the average consumer, triggered by the absence of new cars and subsequent purchasing of automotive manufacturers, leading to everything from supply shortages of PlayStations to a plague of ecommerce scalpers.
The shortfalls in production have spooked governments internationally, with calls to overhaul the global semiconductor supply chain being led by both the US and China.
The international scene
Demand and capacities for production are unsurpassed on both sides, with colossal investments being made to attain chip independence. These include the Made in China 2025 Initiative and CHIPS Act in the US, alongside attempts to manipulate demand by introducing tariffs. As an example, the US recently introduced export controls on advanced chips and equipment intended for Chinese manufacturers, signalling their concerns about China as a commercial adversary.
Increased US regulation also extends beyond its borders. Organisations in nations allied to the US are also under pressure to conform, with ASML in the Netherlands being instructed to cease operations related to China by its US management.
While manufacturers may have relied on the indulgence of either camp to trade, the escalating rivalry has caused concern. State intervention tends to be an unwieldy instrument, especially when applied to a globalised industry with highly specialised elements.
The UK scene
The United Kingdom currently stands at a crossroads amidst the geopolitical tension, with pandemic fallout and jostling between the US and China exposing a commercial fragility. Currently, it’s dependent on external suppliers, which the government needs to address if it doesn’t want the local tech industry to fall behind.
The recent acquisition of the Newport Wafer Fab by Nexperia, a Dutch subsidiary of Chinese manufacturer Wingtech, best illustrates this. Despite the deal having been concluded over a year ago, we now see the UK government reversing the decision after three separate delays to the review process.
With a clear set of policies, this deal would either have been finalised or prevented from occurring, allowing the business to focus on growth without undue uncertainty.
Time to consider smaller firms
Investment shouldn’t be limited to the sale of larger companies. An efficient strategy to develop the UK’s capacity for chip design and manufacture also needs to focus on the growth of smaller firms.
The presence of giants like Intel and TSMC may make this seem unrealistic, but the UK can no longer afford to rely on external design and manufacture while remaining without domestic chip capacity.
Small chip businesses are an important part of the UK’s potential to claim a greater share of the global semiconductor supply chain. Their cooperation will ensure the UK remains part of the international conversation as production capabilities expand across Asia due to US sanctions.
A thriving chip landscape, comprised of a range of firms, will encourage the investment needed to increase the output and quality of semiconductors, attracting greater talent.
Informing investors
Realising this will be easier said than done. The UK will need to become an appealing chip prospect, with clear financial incentives to supply capital and liquidity for smaller businesses looking to fund design and production-led projects.
Investors will need to become more educated and engaged in the semiconductor space, with an understanding of its intricacies, including knowledge of differing technologies and objectives. Meanwhile, the industry will need to produce a cohort of attractive prospects.
So how can the government trigger growth in this sector?
Money where your mouth is
One option is to incentivise stock and share purchases with a wider investor base. This can be achieved through targeted tax incentives directed at institutional, strategic, and retail investors.
Alongside this is government-led investment, which requires reneging on the more laissez-faire approach that led to the selling of firms like Inmos, CSR, and Wolfson. This means the government will need to have a direct stake in some companies, and possibly fund others to stimulate the sector more broadly.
Regardless of the approach, the UK will need to ensure it forms a clear strategy that inspires greater confidence in the local semiconductor space, enabling firms to grow and innovate, and restoring the UK’s capacity for commercial independence.
