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Defence, industry, academics maul HMG over chip sector failings

“I haven’t seen any direction from government..."

Semiconductor stakeholders have savaged the government over its lack of any discernible UK semiconductor industry strategy, with manufacturers, defence firms, academics and industry groups criticising failures to safeguard or bolster the country’s chip production in a series of submissions to HMG published this week.

A lack of action and clear messaging, contradictory and hypocritical policies, overlapping responsibilities between government departments BEIS, DCMS and the MOD and more all came under fire.

Notable by their absence from the written submissions to a BEIS select committee inquiry into the semiconductor industry were responses from Arm, AMD and Intel -- even as the latter in March meanwhile pledged to invest a further €12 billion in its “Fab 34” facility in Ireland between now and the end of 2023.

One of the largest of the 63 respondents was NXP Semiconductors, which has three sites in the UK.

The company's Andy Birnie said it was “great” to be asked to contribute to the inquiry: "Personally, I haven’t seen any direction from government on growth or security in this industry. I am UK country manager of NXP Semiconductors, we have approx. turnover of $12B hence [are] a top 10 global supplier of semiconductors so I hope if there was any government direction, it would have been made visible to me,” said Birnie in the submission.

He added that "the semiconductor supply crisis is almost two-years old already.

"Europe and US have extensive investment programs underway already..."

"The current approach seems to have all the downsides of introducing friction for collaboration and investment without actually protecting core UK infrastructure"WavE Photonics

Another strong response came from Wave Photonics, a Cambridge-based producer of photonic integrated circuits, which can be used for quantum computing, on-chip LIDAR and other applications.

Photonics falls under the UK’s National Security and Investment Act, which came into force at the start of 2022 and restricts the sale of certain technologies. Wave noted: “Paradoxically, excessive national security concerns make international collaboration difficult, resulting in UK companies and researchers being at a comparative disadvantage, reducing the UK’s rate of development of new capabilities. The premature locking down of technology only disadvantages the UK, especially as much of the cutting-edge work is done by start-ups and research groups who do not have the resources or inclination to jump through many legal hoops.”

Wave blasted how national security concerns are applied: “Ironically, one of the few examples of a national security concern, the loss of Newport Wafer Fab, the UK’s only real option for volume integrated photonics manufacture, has been allowed to proceed unhindered. The current approach seems to have all the downsides of introducing friction for collaboration and investment without actually protecting core UK infrastructure".

(Newport Wafer Fab has been bought by a Chinese-backed company for £65 million in a deal that left Tom Tugendhat, chairman of the Foreign Affairs Committee, wondering why "we are, seemingly, handing over critical security infrastructure to overseas companies with well-documented links to the Chinese state.")

The inquiry comes amid colossal global demand for semiconductors, spanning almost every industry vertical. Global chip sales hit $50.7 billion in January 2022 alone and $151.7 billion during Q1 of 2022.

Absent UK semiconductor industry strategy frustrating defence firms

Leonardo provides technologies like its LINX-LR target acquisition system to the military. Credit: Leonardo

With over 7,500 people employed across the UK, Leonardo is one of the UK's leading aerospace companies and one of biggest suppliers of defence and security equipment to the UK MoD. The company was also unimpressed by current UK semiconductors strategy direction, or absence thereof.

It told BEIS: "Alone among the world’s leading industrial economies, the UK has virtually no onshore semiconductor manufacturing capability, despite around a third of UK industry being critically dependent upon these devices. Global silicon supply chain issues have a significant effect on our (defence) business, compounded by the lack of diversity of supply for the latest silicon technologies.

"To make matters worse, major components of UK industry – aerospace and defence –  depend upon specialist technologies which are often export controlled by the originating nation, either for reasons of security or simply for economic advantage. This carries considerable business risk to defence and the UK economy... EU sourced technology might be subject to future trade disputes as the trade relationship between UK and Europe is re-set.

"There has also been some prohibition in the export of German technology to UK for defence..."

Clas-SiC, a Scottish compound semiconductor manufacturer specialising in silicon carbide devices, told the committee: “The UK Government appear to have no clear strategy for securing a sovereign silicon and compound semiconductor supply chain. This is not helped by semiconductors falling under the responsibility of both [DCMS], for the digital aspect; and [BEIS] for the manufacturing and energy aspects. Having clear ownership of semiconductors under one department would enable clarity of strategy and direction for the UK.”

The Centre for Integrative Semiconductor Materials (CISM) at Swansea University agreed.

“There is no coordinated plan for UK semiconductor sector, nor has there been in the recent past whilst across Europe we have the EU Chips Act and in the US CHIPS for America. [Taiwan’s] seeming semiconductor manufacturing dominance is completely underpinned by the Taiwanese Semiconductor Industry Strategy and similar coordination exists in Singapore, South Korea and of course China" it said in one submission.

CISM noted that even before Brexit, the UK failed to participate in the EU’s Important Programs of Common European Interest (IPCEI) scheme, which underpins a lot of Europe’s existing semiconductor industry. They also said Brexit had made hiring skilled workers harder – with the process hindered by visa changes, “and recently completely stalled by the specific refugee crises of the past 12 months dominating Home Office resources”.

NXP's country manager added: "Currently NXP UK is running ~10% below headcount, despite all the hiring (almost 20% of employees have started in 2022).   It is a massive effort to keep recruiting, there is such a gap in numbers of skilled available staff" -- as others added that salaries were up to three times higher in the US or indeed for those with transferable skills sought after by the financial services, much higher in UK finance too.

To Leonardo UK, meanwhile: “It is not obvious from the [Industrial Strategy Challenge Fund, administered by UKRI] investment that a coherent roadmap for semiconductor development and its specialisations (e.g. detectors, microwave power generation, processing chips, ROIC, packaging) follows a strategic plan.”

Leonardo noted pointedly that it had received a similar request for input on the UK semiconductors industry from the Defence Scientific Advisory Council, on behalf of the Ministry of Defence.

See also: Intel unveils €80bn EU investment — UK misses out

Malcolm Penn, founder and CEO of semiconductor industry analysis firm Future Horizons, was critical of all the “non-industry” players in the UK’s chips sector: “Two distinct government department (BEIS and DCMS) both seem to have responsibility but it is unclear to industry exactly who is responsible for what (and thus who to talk to). Academia seem to be more interested in fighting their own corner and protecting their own turf rather than cooperation with each other [creating] duplication and inefficiency; and, in the same way, there are far too many trade bodies for an industry of such relatively small size, all stepping on each other’s toes.

"The industry would benefit from a more rational and simpler structure.”

Penn said that while in the 1990s the UK was the “location of choice” for chip firms, no one Future Horizons has spoken to recently considers the UK as an option for siting new fabs: “It is interesting to note that Intel, the world’s second largest chip firm after Samsung, has recently trawled the world openly seeking highest bidder incentives from various governments to build an advanced semiconductor fab in their country never even [bothered] to stop off in the UK, choosing instead to build its European facility in Germany,” he said.

Some clear proposals to bolster the UK semiconductor industry

To Leonardo, there are some straightforward things HMG could do meanwhile: "Clarity and direction need to be formulated and communicated to industry... Greater interaction between BEIS, MOD (as a major technology investor and end-user) and industry could lead to an integrated technology roadmap which ought then to be funded through themed calls which are linked directly to the roadmap" the company's Robert Lamb said.

He added in Leonardo UK's submission: "There are several specific recommendations that could be considered in formulating a UK policy on semiconductor technologies:

  1. "Set up at least one state-of-the-art silicon fab in the UK, through strong government incentives to attract a major international player. A key objective is that this facility would be a manufacturing hub for advanced chip designs, using the UK’s established expertise in this field. The fab should be built as part of a ‘Freeport’ in accordance with current UK government policies, to facilitate international trade.
  2. "Expand existing UK chip manufacturing capabilities in gallium arsenide production (in NE England) and extend this to include gallium nitride (leveraging current research activities in South Wales). The intention here is to provide a world-class open foundry service for radio frequency devices to rival that currently available from Taiwan. This is a continually burgeoning market and should provide ample growth opportunities to benefit the UK economy, if properly managed.
  3. "Build on existing capabilities in South Wales to build up a centre focussed on high power electronics based on silicon, silicon carbide and gallium nitride- this is also expected to be a key growth area given the move to electric vehicles.
  4. "Establish bilateral agreements with key manufacturers in Europe to improve security of supply of other semiconductor technologies such as silicon germanium.
  5. "Re-allocate research funding to ensure that the focus includes manufacturing technologies as well as basic research. This is vital, and will help underpin the proposed investments above."

All the written evidence submitted to the BEIS select committee’s inquiry is available here. More information about the inquiry is available here.

Update 24 June 2022: After sending a request for comment to BEIS, the DCMS press office responded with the statement below. The fact that the BEIS committee is investigating an area partly overseen by BEIS, and yet DCMS claims ownership of semiconductor strategy is, we might suggest, indicative of the problem suggested by the evidence above.

"The government is committed to supporting the UK's semiconductor industry. DCMS is currently undertaking a review of the sector so we can protect and grow our domestic industry and ensure greater supply chain resilience, working closely with other departments and industry experts. Conclusions of this work to be published later this year," a government spokesperson told The Stack.