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UK gov pushed British chip startup to move production to Malaysia, says CEO

"There's such mixed signals about what we can and can't do in the UK."

A British semiconductor firm was offered government help to outsource some operations to Malaysia, even as ministers are trying to boost the British semiconductor industry.

Paragraf, a Cambridgeshire startup focused on using high-purity graphene to create advanced electronic components, was offered support by the Department for International Trade to use a Malaysian company for some of its production, according to CEO Dr Simon Thomas. Thomas revealed the proposal while giving evidence to the BEIS select committee this week.

“We were approached by the DIT a few weeks ago. Why don't you outsource your outsourced assembly and testing [OSAT] part of the business to a company in Malaysia? Sorry, we want to be in the UK. And the UK, it is telling us no, go and do it in Malaysia,” Thomas told the committee, during its oral evidence session for its semiconductor industry inquiry.

“So there's such mixed signals about what we can and can't do in the UK, I have to dig through so much, just to get to the core of how am I going to do this here in Great Britain. When I've got these other offers coming, even from the UK government, to help me do it elsewhere,” he added.

See also: Defence, industry, academics maul HMG over chip sector failings

In a statement to The Stack, a DIT spokesperson denied Thomas’s claim: “The advice we provided Paragraf on its options for international expansion did not include telling them to offshore their manufacturing.”

The spokesperson said an international trade adviser suggested “a range of company introductions that may support its expansion to international markets”.

“DCMS is currently reviewing how the UK can best protect and grow our domestic industry, given the current strategic importance of the semiconductor industry,” added the DIT spokesperson.

OSAT is the process of packaging up chips – whether made of silicon, graphene or another material – into the familiar devices seen in electronics, and the associated testing. The global OSAT market is worth around $38 billion, approximately a third of the production of semiconductors on wafers.

The OSAT market is dominated by Taiwan and China, with the US and Singapore also having companies in the top 10 OSAT players. The British semiconductor industry only has a small OSAT sector, and other countries, such as Malaysia, are attempting to develop theirs - hence their desire for international business.

Thomas also contrasted the approach of British trade organisations to the US international trade body SelectUSA. He said the US agency had asked what Paragraf needed – talent and infrastructure, according to Thomas – and then gone away and returned with a detailed presentation on what the US could offer.

“They came back with a heat map of the whole of the US, which showed us where all the talent was located. And then they said, here's an extra heat map of you of where your supply chain partners are. And they've gone out and done all of this work themselves. And they went, Oh, by the way, if you move to this state, or this state, we will give you the infrastructure, we will also give you tax rebates for the first five years.

“It's those type of challenges for a business like ours, which is a new business, how do I then justify to our investors that we want to stay in the UK? Now? Of course I do. It's one of my big, big drives is to grow a UK-based business,” Thomas told the BEIS committee.

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In written evidence to the inquiry, Paragraf said British semiconductor industry supply chains were “stretched with several links missing at critical points” – and cited OSAT and volume packaging as examples. Paragraf’s evidence said most semiconductor production in the UK needs some amount of overseas service, “making the security of the final device supply chain questionable”.

“The time for serious investment into Silicon and to some extent compound semiconductor product capabilities, to rival other parts of the world, has passed. The cost, time, effort and resource to do this would be monumental and the probability of ‘catching’ the large incumbents low,” said Paragraf’s evidence.

“Historical capabilities that were in the UK have been eroded resulting in the UK falling back meaning the UK can’t now be compared with China, South Korea, the US and some European countries in terms of both capability and scale.”

Thomas acknowledged the reality of the British semiconductor industry when speaking to the committee, and noted, regarding the DIT’s proposal to use Malaysian facilities, it was “great” there was a relationship to do that work.

“Because if we didn't have the relationship, we'd be stuck. So it's a mix of the two. And it's it comes back to that question about: what is it that the UK wants to secure? Which piece and which part do we want to secure, and which piece and which part can our friendly partners provide for us?” asked Thomas.

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In a statement to The Stack, Thomas said: “We don’t need to develop the whole supply chain and we do have the opportunity to develop physical manufacturing here, especially with new materials that have the potential to lead a future post-CMOS world, and enable chips to continue keeping up with Moore’s law for decades to come.

“As we grow our manufacturing base for new chips, then there are associated opportunities with that and one of those is OSAT, and others include the supply of equipment and wafers – these additional areas are also dominated by overseas players, but there are some local options in several areas. If the government can encourage local players to develop these areas then we would have local supply options, otherwise we need to look overseas,” he added.