techUK, a commerce affiliation which collectively leads the Chips Coalition, explores the UK’s place within the world semiconductor market and considers the adjustments wanted to speed up its place.
Semiconductors, sometimes called ‘chips’, are embedded in virtually each trendy system. They’re already indispensable throughout areas like defence applied sciences, medical gear, autos, and client gadgets, whereas underpinning the following era of rising applied sciences together with quantum, synthetic intelligence (AI), photonics, renewable power, and future telecoms. It isn’t controversial to say that semiconductors are probably the most priceless belongings on this planet at the moment – with world gross sales of semiconductors projected to be $1tn in 2030, virtually double of what it was value in 2023.¹
Whether or not it’s energy electronics utilized in rudimentary gadgets like fridges, or essentially the most cutting-edge chips powering AI, the expansion and relevance of this expertise is for certain to develop. Nevertheless, while the expansion of the semiconductor sector is inevitable, the UK’s place on this story isn’t.
Strategically essential, uniquely weak
While the impression of semiconductors is monumental, the provision chain wherein they’re designed and produced is extremely intricate and deeply prone to disruption. In 2020, semiconductor provide shortages are thought to have decreased world progress by a full proportion level, with the automotive business alone estimated to have produced virtually eight million fewer autos.² Alongside financial insecurity, provide chain disruption may threaten essential nationwide infrastructure, comparable to energy and transport networks, making the semiconductor provide chain important to nationwide resilience.
The strategic significance, financial potential, and inherent vulnerability of semiconductors have pushed governments worldwide, such because the US, EU and China, to make vital investments of their home industries. The European Chips Act, for instance, has earmarked €43bn to strengthen semiconductor infrastructure, help start-ups, develop the workforce, and drive innovation throughout the continent.
In November 2024, the European Fee’s Government Vice-President for Tech Sovereignty, Safety and Democracy reaffirmed this dedication by naming semiconductors as a foundational expertise for Europe’s future, alongside AI, cloud computing, quantum applied sciences, and area. These nationwide methods sometimes contain large-scale public funding and beneficiant subsidies, a lot of this being notably extra formidable and aggressive than the UK’s present efforts. By uncooked amount alone, the £1bn over ten years dedicated within the UK Nationwide Semiconductor Technique is dwarfed by the likes of South Korea, who in January 2024 introduced $470bn to develop the world’s largest semiconductor cluster.³
To stay related and aggressive, the UK is aiming to strategically place its present subsectors, leveraging globally recognised strengths within the semiconductor worth chain to strengthen home capability and reply successfully to those worldwide methods.
UK semiconductors: A robust cog in a worldwide machine
Strategically, the UK excels within the earlier levels of the semiconductor worth chain, notably in analysis and growth, design, and mental property. It additionally holds a number one place in compound semiconductors, which use a number of parts to ship efficiency benefits for cutting-edge purposes comparable to 5G, photonics, and quantum applied sciences. These capabilities align carefully with the UK’s broader ambitions to steer in rising applied sciences like AI, quantum, and photonics.
The UK punches properly above its weight in these world markets. Cambridge-based Arm, whose chip structure underpins the overwhelming majority of smartphones worldwide, is a transparent instance of the UK’s world impression in semiconductors. In 2023, the South Wales semiconductor cluster alone exported merchandise valued at over £514m, with 90% of output heading to worldwide markets. The UK additionally stays a magnet for world expertise, with 23% of latest hires in UK semiconductor corporations coming from abroad – a testomony to the sector’s worldwide attain and popularity.⁴
Already, the sector contributes considerably to the UK: in 2021, it generated £12bn in turnover and accounted for 12% of the UK’s whole R&D expenditure. With over 200 specialist semiconductor corporations throughout the nation, half of them positioned exterior London and the Southeast, the business is each geographically various and economically excessive worth. Productiveness is powerful, with estimated income per worker reaching £635,000. Confidence within the sector can be excessive, with 90% of corporations anticipating reasonable to fast progress within the coming years.
Though the UK doesn’t possess large-scale chip fabrication capability on par with world heavyweights comparable to Taiwan or South Korea, it’s residence to about 23 commercially profitable fabs producing specialised merchandise for world markets. Notably, the current institution of the UK’s first 300mm wafer fabrication facility by Pragmatic Semiconductor within the Northeast marks a big milestone in increasing home manufacturing capabilities.
A nationwide imaginative and prescient
The UK’s Nationwide Semiconductor Technique was warmly welcomed by business as a daring roadmap to help progress throughout essential areas like abilities, analysis, and infrastructure. Constructive steps have adopted. Notably, the Digital and Expertise Sector Plan, as a part of the Industrial Technique, introduced the creation of a brand new UK Semiconductor Centre, backed by as much as £19m.⁵ The Centre will unite business, academia, and authorities to steer on innovation, present enterprise help, and develop long-term R&D and infrastructure roadmaps to information future funding. A central hub for the UK ecosystem has been a long-time ask from business, together with not solely from techUK, but in addition by the Chips Coalition in an open letter to the Secretary of State final yr, and the 2023 Institute for Manufacturing’s infrastructure feasibility examine.
techUK believes this Centre has the potential to play a pivotal function in supporting the sector in a number of methods. Firstly, the UK Semiconductor Centre ought to act as a central hub, uniting the UK’s dynamic regional ecosystems, co-ordinating entry to very important nationwide infrastructure, and helping scale-ups by focused initiatives that assist them navigate and join throughout the panorama.⁵
As well as, the Centre ought to strengthen hyperlinks between semiconductors and different rising applied sciences comparable to AI, quantum, and photonics, enjoying a outstanding function on the worldwide stage, positioning the UK as a reputable and collaborative world accomplice in semiconductor innovation. This Centre may show a improbable instrument in addressing the sector’s largest bottlenecks.
The UK semiconductor business didn’t emerge by catching lightning in a bottle, it earned its place by sensible, collaborative efforts throughout coverage, academia, and business. However previous management can’t be taken with no consideration. Simply as Japan as soon as dominated client electronics earlier than dropping floor to American, Korean, and Chinese language gamers, the UK’s present place as a powerful accomplice in area of interest subsectors should be doubled down upon, or face being misplaced to different nations.
Whereas the UK stays Europe’s largest tech hub, future management will depend on sturdy foundations, and semiconductors are important to that. The Nationwide Technique marked actual progress, and early actions present promise. However world competitiveness received’t be secured by light-touch efforts. Now’s the time to show technique into sustained motion. The remainder of the world is investing tens of billions – generally lots of of billions – to safe a stake in the way forward for this expertise, right here’s what we have to do to seize ours…
Turning technique into motion
The UK semiconductor ecosystem stays cautiously optimistic, with the sector benefitting from sturdy consensus on the challenges and interventions wanted for progress. techUK and its function within the Chips Coalition has helped us establish a transparent set of objectives: turning strengths into management, unlocking funding, and securing our place in world provide chains.
Flip strengths into world management
The UK isn’t ranging from scratch. It has globally aggressive strengths in chip design and IP, centred round Cambridge, (with different key hubs in Manchester, Sheffield and Bristol). South Wales additionally hosts a powerful cluster in specialised, non-leading-edge manufacturing, comparable to compound semiconductors. These capabilities have been constructed by sensible, focused coverage and infrastructure that help innovation and scale.
Authorities should now construct on this basis with an formidable, co-ordinated plan tailor-made to every subsector. The abilities required for a producing firm will range vastly to these in chip design – coverage intervention should mirror that. Swift supply is crucial, making full use of the UK’s deep pool of experience and potential. To compete globally, the UK ought to double down on its strengths in design and IP, R&D, and compound semiconductors, whereas guaranteeing the monetary help wanted for high-growth corporations to scale at tempo.
Allow larger funding into these strengths
To really construct on these strengths, authorities should guarantee semiconductor companies have dependable entry to each public funding and personal capital. Regardless of having the third largest tech sector globally, after the US and China, many UK semiconductor start-ups cite restricted entry to large-scale personal funding as a key barrier. At techUK’s 2024 roundtable on semiconductor scale-ups, one founder famous that simply 5% of their funding got here from UK funding.
The UK wants an atmosphere that helps funding, collaboration, and expertise throughout its main subsectors. That won’t be doable if corporations proceed to face excessive prices and low ranges of home funding, which dangers turning us into an ‘incubator financial system’ that begins corporations right here, however scales them abroad. Authorities should guarantee a variety of funding choices can be found throughout the total progress journey of semiconductor companies, from early stage to scale-up.
Constructing strategic world partnerships
The worldwide semiconductor provide chain is deeply interconnected and interdependent, with sure nations and firms holding vital market energy. Taiwan’s TSMC, as an illustration, produces round 90% of the world’s most superior chips. The UK additionally performs an important function – over 99% of smartphones globally use chips designed by Arm, primarily based in Cambridge.
Disruptions to those world provide chains, whether or not unintentional or deliberate, will proceed to have an effect on the UK’s semiconductor capabilities. Constructing resilience is crucial. Whereas the UK will depend on world companions, the world additionally will depend on UK strengths. The federal government ought to recognise and leverage this mutual reliance by selling UK capabilities on the worldwide stage and creating new alternatives for collaboration in analysis, funding, and innovation.
Specializing in supply
In the end, semiconductors are usually not simply one other a part of the expertise panorama, they’re the muse of it. The UK must retain a powerful home semiconductor provide chain for nationwide resilience and future progress, and we’ve received all of the instruments to take action. The Nationwide Semiconductor Technique has made some optimistic strides, with the establishing of a UK Semiconductor Centre holding a number of potential to co-ordinate environment friendly help for the sector. Now, we should deal with supply. That’s the duty forward, and teams like techUK and the Chips Coalition are pushing arduous to make this a actuality.
References
- https://www.axa-im.com/investment-institute/investment-themes/technology/advances-ai-and-tighter-labour-markets-sees-robotics-and-automation-sector-soar
- https://www.csis.org/analysis/mapping-semiconductor-supply-chain-critical-role-indo-pacific-region
- https://www.dw.com/en/south-korea-invests-big-in-becoming-a-global-chip-leader/a-68073870
- https://csconnected.com/media/trijjr3n/csconnected-sipf-weru-annual-report-2023.pdf
- https://www.techuk.org/resource/uk-semiconductor-centre-announced-as-part-of-strong-support-for-semiconductors-in-the-industrial-strategy.html
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