British semiconductor plans go AWOL as US and EU splash billions


As countries around the world scramble to secure key semiconductor supply chains for fear of ties with China, the UK is falling behind. 

The COVID-19 pandemic has exposed the world’s over-reliance on Taiwan and China for the most advanced chips, which power everything from iPhones to advanced weapons. For the past two years and amid fears that China could attack Taiwan and trigger a new global security crisis, Britain’s government has been preparing a plan to diversify supply chains for key ingredients and boost domestic production.  

Yet according to people close to the strategy, the UK’s as-yet-unseen plan – which missed its publication deadline last fall – has suffered from internal disconnections and government chaos, leaving the country behind its global allies in a key race to become more self-sufficient – dependent A lack of experience and convoluted policy-making in Whitehall, a period of intense political upheaval in Downing Street and new US controls on advanced chip exports to China, have collectively hampered the UK’s efforts to create a coherent plan.  

A former senior Downing Street official said the way the strategy had been drafted so far was “a mistake”. lagging During the pandemic, demand for semiconductors outstripped supply as consumers flocked to arrange their work-from-home setups. This caused important chip shortages – quickly compounded by China’s strict “zero-Covid” policy. 

Because a semiconductor fabrication plant is so technologically complex — a chip lithography system by German firm Trumpf has 457,000 parts on a single laser — centralized manufacturing in a few companies has helped the industry innovate in the past.  

But when Covid-19 hit, everything changed. “Governments have suddenly woken up to – ‘Wait for a second, this semiconductor stuff is pretty important, and it All appears to be focused in a small variety of places,'” stated a senior British semiconductor enterprise executive. 

Beijing’s launch of a hypersonic missile in 2021 also sends shivers through the Pentagon over China’s growing ability to develop advanced AI-driven weapons. And Russia’s aggression in Ukraine has added to geopolitical uncertainty, increasing pressure on governments to shore up builders and reducing reliance on potential conflict hotspots such as Taiwan.  

Against this background, many of the UK’s allies are investing billions in domestic production The EU has its own €43 billion plan to subsidize US manufacturing, with the Biden administration’s CHIPS Act, passed last summer, providing $52 billion in subsidies for semiconductor production in the U.S. — though its position is not without critics. 

Emerging producers such as India, Vietnam, Singapore, and Japan are also stepping up their multibillion-dollar efforts to boost domestic manufacturing. Now the UK government is under mounting pressure to show its hand. 

In a letter to Prime Minister Rishi Sunak that was first reported by The Times and also obtained by POLITICO, Britain’s semiconductor sector said that “with each month of inaction its confidence in the government’s ability to address the industry’s vital importance continues to diminish. 

This comes after an early copy of the U.K.’s semiconductor strategy was leaked, reported by Bloomberg, warning that Britain’s over-reliance on Taiwan for semiconductor foundries makes it vulnerable to any invasion of the island nation by China. 

Taiwan, which Beijing considers part of its territory, produces more than 90 percent of the world’s advanced chips, with its Taiwan Semiconductor Manufacturing Company (TSMC) vital to the manufacture of British-designed semiconductors.

Actions by the United States and the European Union have already enticed TSMC to begin the construction of new plants and foundries in Arizona and Germany.

“We critically depend on companies like TSMC,” said the industry executive quoted above. “It would be catastrophic for Western economies if they could no longer get access to leading-edge semiconductors.”

Whitehall during wartime

Yet there is a concern, both inside and outside the British government, that key Whitehall departments whose input on strategy could be crucial are being left out in the cold.

The UK’s Department for Digital, Culture, Media, and Sport (DCMS) is preparing the plan and maintains ownership of the project, according to observers. DCMS is one of the smallest departments in Whitehall and is often referred to as the ‘Ministry of Fun’ for issues related to sports and leisure as well as technology.

“In other countries, semiconductor policies are the product of multiple players,” said Paul Triolo, a senior vice president at US-based strategy firm ASG. These include “major subsidy packages, legislative support for funding for the Department of Commerce and Trade, R&D agencies and high-level strategic policy agencies to work on issues such as improving supply chain resilience,” he said.

“You need all the elements of the U.K.’s power. You need the diplomatic service and the security service. You all have to work together on this,” said the former Downing Street official quoted above. “There is a huge national security aspect to this.”

The same person said that “relying on a few [lower] grade officials in DCMS—officials who don’t see the bigger picture, or who don’t have the power or knowledge” is a mistake.

For its part, the DCMS rejected the suggestion that it was guarding the plan too closely, with a spokesman saying the ministry was “working closely with industry experts and other government departments. so we can protect and grow our domestic sector and the wider supply chain.” I can confirm. Resilience.”

The spokeswoman said the strategy “will be released as soon as possible.”

But businesses keen on the scheme remain unconvinced that the UK has the right team for the job.

The original Whitehall staff who were involved in the project have now changed, the executive previously noted, and few of those who wrote the strategy “have much background or first-hand experience of the industry.”

Progress was also stalled last year by lengthy talks over whether the sale of Britain’s largest semiconductor plant, Newport Wafer Fab, to Chinese-owned Nexeria should be stopped on national security grounds, according to two people directly involved in the strategy. The government finally announced that it would end sales in November.

And while a draft of the plan existed last year, it never progressed to the all-important ministerial “write-around” process – which gives departments across Whitehall the opportunity to scrutinize and comment on the proposals.

Awaiting Budget Day

Two people familiar with current discussions about the strategy said ministers were now aiming to make their plans public on or around Chancellor Jeremy Hunt’s March 15 budget statement, though they stressed that timing could still change.

Leaked details of the strategy indicate that the government will set aside £1 billion to support chip makers. Further leaks indicate that it will be used as seed money for startups to boost existing firms and provide new incentives for investors.

There is a dispute with the Treasury and other departments about the size of this subsidy. Experts also say that this is unlikely to be ‘new’ money but siphoned off from the budgets of other departments.

“We will have to wait for something more significant,” said a spokesman for a semiconductor firm, commenting on the pre-strategic leak.

But with the UK lagging, key British-linked firms are already suffering from the rapidly evolving US semiconductor strategy. U.S. rules brought in last October — and enhanced in recent days by an agreement with the Netherlands — prevent some companies from selling the most advanced chip design and manufacturing equipment to China.

British-headquartered, Japanese-owned firm ARM – the crown jewel of Britain’s semiconductor industry, which sells some designs to smartphone makers in China – is already seeing limits to what it can export. Other British firms such as Graphcore, which makes chips for AI and machine learning, are also feeling the pinch.

“The UK needs to understand — with speed — what it wants its role to be in the industry that will define the economy of the future,” said Andy Burwell, director of international trade at business lobby group CBI.

Where do we stay here?

There are serious doubts both inside and outside government about Britain’s long-awaited plan to get to the heart of a complex global challenge – and opinion is divided over whether it is possible or even desirable to use the US and EU’s subsidy packages in the UK.

A former senior government figure working on semiconductor policy said that while the U.K. needed a “more coherent hard-working plan,” releasing a formal strategy could reveal how “complex, messy and out of our control” the problem is.

“It’s not that it’s problematic that we have no strategy,” they said.

“It’s troubling that whatever strategy we have is not going to be revolutionary.” They described the idea of a “boosterish” multi-billion-pound investment in Britain’s fabricator industry as a “pie in the sky”.

The former Downing Street official said Britain should instead seek to work in “cooperation” with EU and US partners, and be “careful” to avoid subsidy wars with allies.

The opposition Labor Party, the hot favorite to form the next government after the expected 2024 election, takes a similar view. “It’s not like the UK can do this on its own,” shadow foreign secretary David Lammy said recently, calling on ministers to team up with the EU to secure semiconductor supplies.

One area where some experts believe the UK may be able to create a competitive advantage, however, is in the design of advanced semiconductors.

“The UK will probably be best placed to pursue support for start-up semiconductor design firms such as Graphcore,” ASG’s Triolo said, “and to provide support for capacity expansion at the existing small number of companies manufacturing at more mature nodes” such as Nexeria’s Newport wafer fab.

Ministers launched a research project in December aimed at tapping into existing strengths in the UK semiconductor sector’s design. According to a recent report by the House of Commons Business Committee, the Government has so far poured £800m into compound semiconductor research through universities.

But the same group of MPs wants more action to support advanced chip designs Burwell, of the CBI business group, said the UK government must “start working alongside industry, rather than the government essentially creating a strategy and then coming to the industry.”

At the moment the government is “struggling a bit to see which levers they have to pull,” a senior semiconductor executive previously quoted.

Under WTO rules, governments are allowed to subsidize their semiconductor manufacturing capacity, the executive pointed out. “The US is doing it. Europe is doing just that. Taiwan does that. So should we.”

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Marta Lopez

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