Pre-pandemic, the semiconductor industry was a largely unknown entity to the average person. In 2021, however, consumers started to ask questions as to why the price of second-hand cars was rocketing, and why it was becoming so challenging to get their hands on the latest PlayStation.
Whilst they vary in complexity and sophistication, what has become abundantly clear is that chips are at the crux of nearly every piece of technology that is used in our day-to-day modern lives.
They’re in our cars, refrigerators, phones and games consoles. It would not be an over-exaggeration to claim that they are absolutely crucial to the operations of our modern lives. A combination of booming demand for consumer technology and global supply chain disruption has adversely impacted supply, and the issue has become a matter of strategic importance for nation states all over the world.
Geopolitics has also played a significant part in the crisis. Russia’s invasion of Ukraine has deepened the global supply chain upheaval, and the semiconductor industry is no exception. More than 50% of the world’s neon, a component that is critical in the manufacturing of chips, comes from two Ukrainian companies: Ingas and Cryoin. Both firms shuttered operations at the start of the war.
The learning here is that there will always be unpredictable circumstances that may arise. Nations need to better prepare themselves for years of ongoing disruption. At present, there is no definitive ‘end’ to the shortage.
Taiwan produces over 80% of the world’s chips and has commanded significant influence as the most advanced manufacturer of semiconductors. Worryingly, the nation is caught in a geopolitical storm between China on one side and the US, Japan and the West on the other in terms of its future.
Amongst all this geopolitical turmoil there must be assurances that a competitive environment exists for the industry to minimise the risk of access later down the line. Concentrating production of chips in one country is unpredictable and unsustainable and the shortage currently shows only limited signs of abating.
‘Britain must deploy a similar sense of urgency’
At the time of writing, the UK government has yet to release its semiconductor strategy. In contrast, the US has been quick to move in both the private and public semiconductor space – with big tech companies announcing plans to build their own foundries and the government moving swiftly to push through legislation. The EU has also been discussing plans for building new, advanced foundries.
In 2021, Samsung announced an investment in a new fab facility also in Texas, and Intel announced plans to build two leading-edge logic fabs in Ohio, set to start in 2022. These foundries will warrant billions of dollars of funding and sites do take some time to construct and even longer to become productive – but it will undoubtedly be worthwhile.
Mimicking the efforts in the private sector, earlier this summer, the US Senate voted to move ahead with the Chips Act, which calls for greater government funding for the industry and subsidies. The UK must deploy a similar sense of urgency.
There are positive sounds coming from the UK government. For example, the Department for Digital, Culture, Media and Sport (DCMS) is set to hire a senior policy advisor for semiconductors as part of its Economic Security Unit.
The Business, Energy and Industrial Strategy (BEIS) committee in the UK is also heavily involved in investigations of foreign takeovers of British firms such as Newport Wafer Fab on its sale to Nexperia. However, nearly two years into a global chip shortage – the government needs to move with a greater sense of urgency.
Semiconductor strategy key to national interests
Investment, be it private or public, is no quick fix. Britain must also protect its current assets. It is becoming a world leader in compound semiconductors, and this needs further support. The controversial sale of Newport Wafer Fab to Chinese-backed Nexperia must be meticulously scrutinised in the UK government’s ongoing investigation, and it must do better than its handling of Arm’s sale to SoftBank back in 2016.
The then newly appointed Chancellor Phillip Hammond took his eye off the ball when Arm was sold to SoftBank – a sale that faced virtually no scrutiny and apparently ignored matters of national security and strategy. Recently, Softbank announced its intention to list Arm on the public markets, with the Nasdaq as the possible winner over the London Stock Exchange.
Over the next ten years, the extent to which countries protect their digital sovereignty by maintaining ownership of world-class technologies will become one of the most important debates facing nation states. Government support really does matter, with the recent implementation of the National Security and Investment bill – for example – representing a step in the right direction.
Now is the time for the UK to take ownership of this issue and demonstrate absolute commitment to its domestic semiconductor industry to the rest of the world. The UK stands shoulder to shoulder with the US and China when it comes to technological excellence, growth and investment levels, but has a less impressive track record when it comes to protecting its assets.
With the chip shortage showing little sign of easing, the next government must urgently prioritise nurturing the capabilities of the semiconductor industry in the upcoming strategy. It is not only British technological superiority that hangs in the balance, but also the UK’s wider strategic interests and, ultimately, national security too.