while the US and the EU invest to challenge Asia, British industry is in mortal danger

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US semiconductor giant Micron is to invest $40bn (£33bn) over the 2020s in chip manufacturing in America, creating 40,000 jobs. This is on the back of incentives in the recent US Chips Act, which has also unlocked major investments from other US players Intel and Qualcomm.

The EU is also taking steps to boost computer chip production at home, having decided to try to take share from Asia following the severe global semiconductor shortages of the past couple of years. Over 70% of chips are currently made in Asia, with precarious Taiwan particularly important, accounting for around 90% of the world’s most advanced chips.

In the UK, however, successive governments have overlooked the importance of having a home-grown industry for this vital component, which underpins not only computers and smartphones but also things like cars, planes, satellites and smart devices. There is a clear absence of any strategic plan, and no way to ride the EU’s coattails after Brexit. So what needs to be done?

The new race for chips

Micron’s decision to announce such a large investment in the US is directly related to the Chips Act. The act provides $200 billion to build and modernize U.S. manufacturing facilities, promote research and development in semiconductor technologies, and promote education in STEM subjects to develop the next generation of chip designers.

The US continues to control the majority of IP in semiconductors, but Asia’s dominant manufacturing capacity is growing rapidly on the back of investments from Taiwan’s TSMC and Foxconn, and South Korea-based Samsung. There is also a need to compete with China, which recently surprised the industry by demonstrating technology that beats the world’s best.

Semiconductor production and ownership by country (%)

Earlier this year, the EU set out the scope of its own legislation to increase its share of manufacturing from 10% to 20% of the world total by 2030. It aims to promote “digital sovereignty” by supporting the development of new manufacturing facilities, supporting start-ups, develop expertise and build partnerships. In total, the upcoming action will result in between €15 billion (£13 billion) and €43 billion (£36 billion) being invested in the sector.

The UK perspective

The UK once led the world in semiconductor manufacturing, with highly internationally innovative companies such as Plessey, Inmos, Acorn, Imagination Technologies and Cambridge Silicon Radio. Pockets of excellence and world-leading innovation remain, particularly in semiconductor design. Clusters in south Wales, south west England and east England, for example, have a critical mass of activity. But they have lacked the necessary finances to scale up, and all the large investments elsewhere put the industry in an increasingly vulnerable position.

It is not just the UK’s position in semiconductors that is under threat. Lack of capacity creates risk for the entire electronics supply chain, which can weaken the economy as a whole. For example, UK car production has been severely constrained by the recent chip shortage.

To avoid such problems, the UK must pass a separate Chips Act. This aims to kick-start the industry by stimulating investment in manufacturing facilities, called ‘fabs’. Some commentators have argued against this move, mainly because of the huge costs involved. But it would be money well spent to achieve digital sovereignty.

A British action should stimulate investment both directly and indirectly. Direct funding will ensure increased production capacity by building new factories or expanding and upgrading existing facilities, particularly for chips related to sensors, power, consumer electronics and communication devices. The government can then also support the industry indirectly through policies such as tax credits for investment companies, land supply and support infrastructure.

Another priority should be to strengthen existing national competitive advantages around the design of smaller chips with more efficient circuits and greater computing power. This will involve both improving the current generation of chips and developing new approaches such as “beyond CMOS” technologies, which promise faster and denser chips, but crucially with a lower energy requirement. Providing R&D grants or guaranteeing loans to explore, test and consolidate new designs will help bring the UK back to the forefront of developments in the sector.

University funding

Finally, the UK needs to harness the knowledge and research expertise around design and manufacturing in its universities. This is spread across various institutions, including the universities of Cardiff and Swansea in Wales; Strathclyde and Edinburgh in Scotland; Queen’s University Belfast in Northern Ireland, which has its own foundry; and the University of Sheffield in England.

The UK government has funded over £1 billion of university research into semiconductors since 2006, but US and EU chip laws underline how much more is required. There is also a need to focus university funding on commercial outcomes that will drive sales and increase UK market share. Brexit has limited funding opportunities by increasing uncertainty about the UK’s future involvement in the European Horizon scheme, which is the EU’s most important R&D funding programme. It may therefore require a national compensation.

It is clear that the national outlay for dealing with COVID and the current cost of living crisis will limit potential government investment in the coming years. But the recent semiconductor shortage has also made it clear that a degree of self-sufficiency in this key technology will be critical to ensuring economic resilience in a highly volatile and unpredictable world.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The conversation

The conversation

Robert Huggins receives funding from UKRI.

Andrew Johnston does not work for, consult with, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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