UK Lays Out £1 Billion Plan to Invest in Domestic Chip Sector

After the US and EU pledged tens of billions of dollars to bolster their semiconductor industries, the UK government has announced its own commitment: £1 billion ($1.24 billion).

(Bloomberg) — After the US and EU pledged tens of billions of dollars to bolster their semiconductor industries, the UK government has announced its own commitment: £1 billion ($1.24 billion).

Pandemic-era shortages disrupted global supply chains and underscored the world’s reliance on Asia for chips used in electronics from mobile phones to cars. This led major Western economies to launch programs to beef up domestic capabilities, with the US and EU investing $50 billion and €43 billion ($46.3 billion) respectively to fund manufacturing in their regions.

Rather than spending big on factories to make cutting-edge silicon chips, which can cost more than $10 billion each, Britain’s plan is to focus on areas where the nation already has an advantage. The UK accounts for just 0.5% of semiconductor sales across the world, according to a Parliamentary report on the sector.

“Our new strategy focuses our efforts on where our strengths lie, in areas like research and design,” Prime Minister Rishi Sunak said in a statement Friday. It was welcomed by a range of executives including Arm Ltd. CEO Rene Haas and Pragmatic Semiconductor Ltd. founder Scott White.

But the announcement also drew criticism. Opposition Labour Party MP and business committee chairman Darren Jones, who led an inquiry of lawmakers into the UK’s chip sector, called the funding package “tiny.” His Labour Party colleague Lucy Powell said it will be “met with disappointment by the scale of its ambition.” Following Arm’s decision to list in the US, she said, “This strategy offers little assurance we can maintain and grow an industry vital for growth and national security.”

Industry reaction was mixed.

“While we welcome the publication of the semiconductor strategy and finally the government’s commitment to driving this industry forward, the content is quite frankly flaccid,” said Simon Thomas, the founder of British graphene chip startup Paragraf Ltd. “It is a long way from addressing the needs of UK chipmakers.”

He criticized the announcement’s lack of detail about removing barriers for growth, and described the sum pledged by the government as a “rounding error” in the context of the industry.

The UK’s total 10-year funding commitment is less than what the world’s leading silicon chip foundry company Taiwan Semiconductor Manufacturing Co. Ltd. spends every two weeks, as part of its annual $32 billion capital expenditure.

Chip Race

Global chip supply disruptions brought on by Covid-19 restrictions sparked a race between major economies to secure inventories, protect proprietary technologies and make more semiconductors at home, in what is known as the “Chip War.” The US in particular has aggressively targeted China’s efforts to advance its semiconductor technologies, blocking American companies from providing certain equipment and services to the country.

The UK Department for Science, Innovation and Technology said the government’s investments will focus on areas including research and semiconductor design. Britain is already home to Arm, SoftBank Group Corp.’s prized chip designer. The UK is also targeting compound semiconductors, made of combinations of elements with properties deemed promising in emerging technologies such as 5G, electric vehicles and facial recognition.

The government said investments will expand the domestic sector, protect national security and mitigate the risk of supply chain disruptions. However, the silicon chips most critical to day-to-day applications will still come from overseas — particularly from Taiwan, home to the world’s leading supplier of chips.

The UK promised a further announcement later this year on additional support for investment in manufacturing, and it will also “increase its cooperation with close partners” to develop supply chain resilience, the government said.

“We’ll need a lot of friends in this process,” said Russ Shaw, founder of Tech London Advocates, a network for the UK’s tech industry, in an interview with Bloomberg Radio on Friday.

The long-awaited announcement comes after months of pressure on the UK government from the industry, with some companies looking abroad for support. In 2021, US chips giant Intel Corp. told the BBC it had ruled out the UK as a location for a new plant because of Brexit.