Do you want chips with that? New semiconductor strategy targets investment, talent and supply chain issues

On 19 May, the UK published its Semiconductor strategy which outlines a range of plans to shore up the future of semiconductors within the UK. This includes plans to safeguard supply chains and steps organisations can take to help with this.

The importance of semiconductors in both our day-to-day lives and the global economy cannot be overstated. Semiconductors (also known as ‘chips’) are not only at the core of electronic devices such as phones and cars but also lay the foundations for new and future focussed technologies such as quantum and AI. Worryingly, market analysis has shown that global semiconductor demand may outstrip capacity over the next 10 years; the shortages in chip supply during the COVID-19 pandemic have shown that this can have a devastating economic impact.

Most manufacturing of semiconductors takes place in East Asia and, in particular, Taiwan which manufactures over 60% of the world’s semiconductors and over 90% of the world’s most advanced ones. This creates a high degree of vulnerability in the event of disruption which, in conjunction with the political uncertainty currently surrounding the area, poses a potential issue. Additionally, the UK has a relatively small share of global silicon semiconductor manufacturing capacity with most facilities in the UK focussing on legacy semiconductor technologies.

To combat these challenges, in May of this year the government published its strategy outlining its £1 billion commitment to investment in semiconductors over the next 10 years. The strategy’s key goals are:

1. growth of the UK industry;
2. safeguarding supply chains; and
3. protecting the UK against security risks.

The strategy is targeted at organisations in the semiconductor sector; however, issues such as those within the semiconductor supply chain makes it of wider interest to all business using chips. The strategy outlines a number of plans to shore up the future of semiconductors within the UK. These include:

• Supporting and growing the domestic sector: Semiconductor technologies can be risky investments with long returns on investments, making it challenging for companies to gain sufficient investment for commercialisation. The government is looking at addressing this through seed funding opportunities and incentives for companies with high research outlay. The strategy also states that additional tax relief will be provided for R&D intensive SMEs.
• UK incubator programme: In the highly technical semiconductor sector, new companies can struggle to access the tools and infrastructure needed to develop designs or manufacture prototypes. The government intends to pilot a UK incubator programme to support new semiconductor start-ups in the UK and to lower the barrier to growth for new companies in the sector.
• Domestic skills: The semiconductor market has employee skill shortages with job postings outstripping skilled workers. There are actions businesses can take to improve their talent pipeline such as investing in outreach programmes.
• Supply chain resilience: The semiconductor supply chain is extremely disaggregated and has numerous weaknesses including: (i) the concentration of manufacturing in South East Asia; (ii) the number of production stages across the world; and (iii) reliance on critical minerals. The strategy states that businesses should be taking their own actions to improve the resilience of their chip procurement practices which the government will support through semiconductor resilience guidance and a government-industry forum.
• Export control regime: Part of the strategy looks at tightening the export control regime to restrict the export of chips; the government has said it will work with businesses in relation to this. Depending on the changes made to the export control regime, this may lead to further obligations being imposed on businesses in the semiconductor industry such as enhanced customer due diligence requirements.

An overarching takeaway from the strategy is the emphasis the government places on working together with industry to deliver a solution to the challenges faced regarding semiconductors. Businesses in this space may therefore want to use this opportunity to work with government to help shape its plans (the government is open for feedback, consultation and challenge at semicondutorstartegy@dcms.gov.uk) as well as looking at ways to build up their supply chain resilience and employee talent pool.