UK government may need to revisit the National Semiconductor Strategy to guard against potential supply chain disruptions and succeed in nurturing a successful domestic semiconductor ecosystem for the future.

Britain's long overdue semiconductor strategy was published last May by the previous government. It was criticized by some for offering too little funding (£1 billion/$1.3 billion over a decade) and having too narrow a focus on a handful of key areas.

Others reckoned the UK would never be able to compete directly with Taiwan or the US in mass manufacturing, and backed the administration's decision to focus instead on those parts of the supply chain where Brit companies had an advantage - chip design, R&D, and compound semiconductors.

Now, a forthcoming report from a group of academics - seen by The Reg ahead of publication - will urge the government to revise its strategy once again, this time based on an up-to-date and systematic survey of the semiconductor industry it is advised carry out. It claims there are risks to the UK posed by "significant dependencies" on US suppliers and investors, and warns of creeping Chinese investment and ownership of British firms.

The authors, from the University of Sussex and King's College London, say that both the US and EU have invested in detailed mappings of semiconductor supply chains in order to inform their policies.

By contrast, claim the authors, the UK has not made a similar effort, and the report says the current strategy appears to base its recommendations on "pre-existing and generic market analyses, coupled with selective industry input." This risks overlooking important nuances in ownership structures, and supply chain relationships, hence the recommendation of a survey.

Er... did you guys just skip over the Midlands?

To further illustrate the need for a fresh survey, the report says that the government identified chip industry clusters in Cambridge, Bristol, the North East, South Wales, Scotland, and Northern Ireland, but overlooked the Midlands. The authors say this region accounts for 24 percent of jobs and 18 percent of revenue for the 61 major UK semiconductor companies.

"Without a thorough understanding of the entire semiconductor ecosystem, including potentially overlooked regions and emerging subsectors, the strategy risks misallocating resources and missing opportunities for growth," the report states.

Then there are the supply chain vulnerabilities. While everyone is worried about Taiwan, which produces 68 percent of the world's advanced chips but is threatened by China, the report finds that US investors hold a 27.5 percent share in those 61 Brit chip firms on average, more than anyone else.

In addition, for those UK semi companies with detailed data available, 53 percent of their supplier facilities are located in the US, and 54 percent of their customers are there.

Even if you ignore the political uncertainty posed by the US elections this year, Washington has already demonstrated it is prepared to act ruthlessly as far as foreign technology operations that are exposed to its influence are concerned, imposing vexatious trading restrictions on companies such as Dutch photolithography giant ASML, for example.

As the report notes, "while the US is a close ally, over-reliance on any single country - even a friendly one - can pose risks to supply chain resilience."

Bbbbbrexit

Meanwhile, no mention of UK and trade is complete without the "B" word. The report notes that the EU plays a significant role in the production networks of UK semiconductor firms, and that this represents both a risk and a potential opportunity that the existing government strategy disregards.

British companies are mostly ineligible for direct funding via the EU Chips Act, for example, while B****t has introduced new supply chain vulnerabilities, including potential disruptions due to trade barriers and regulatory divergence, and restricting access to skilled workers.

The report recommends the government works on improving relations and streamlining customs procedures for semiconductor-related trade with EU countries, but should also consider how to broaden supply chain resilience. In particular, this should look at measures to address potential disruption to supply chain links with the US following the November elections.

China also plays a lesser but not insignificant role. Many people who follow the tech industry on this side of the pond will be aware of the controversy over Nexperia, which was forced by the government to sell the Newport Wafer Fab (NWF) facility in South Wales because its own parent company is Chinese.

But many other investments from the Middle Kingdom have crept under the radar, according to the report. Imagination Technologies is fully owned by Beijing-based venture capital firm Canyon Bridge, while Dynex Semiconductor Limited is wholly owned by China's state-owned CRRC group, it says. Chinese investors are also claimed to hold equity positions in many of those 61 major UK semi operations.

As this poses a potential risk, the report recommends the government implements a high technology foreign investment observatory. Rather than looking solely at major acquisitions, this should also analyze the cumulative impact of multiple small investments in the semiconductor sector from foreign players, especially China.

The report is provisionally title "Towards A Data-Driven UK Semiconductor Strategy."

The report's four authors are; Julian German, Department of International Relations, University of Sussex; Steve Rolf, Digital Futures at Work (Digit) Research Centre, Business School, University of Sussex; Joseph Baines, Department of European and International Studies, King's College London; and Sean Kenji Starrs, Department of International Development, King's College London.

For readers interested in the full report, it will be published as part of the Digital Futures at Work (Digit) Research Centre's Policy Briefs series, sometime in September. ®

https://www.theregister.com//2024/08/13/uk_semi_industry_exposed_to/