Prime minister Rishi Sunak has pledged to turn the UK into a technology superpower with the help of chip makers. However, that ambition has been dealt a heavy blow as Britain's semiconductor industry is being lured to the US and Europe amid a lack of support on home soil.
Millions of products from cars to washing machines and mobile phones rely on microchips also called semiconductors.
The UK’s semiconductor industry will receive £1bn in investment over the next decade. Although that might seem like a lot of money, the industry claims that wouldn’t even cover one basic chip plant.
To put things in perspective, the US pledged $52bn (£42bn) in subsidies for semiconductor manufacturing and research, while the EU drew up a €43bn (£37bn) investment plan for the sector.
When £1bn becomes small fry
The £1bn figure in reality is not that large by industry standards, Simon Thomas of Paragraf said.
The sum is "less than what it would cost to establish a very basic microchip fabrication plant,” he warned.
The lack of an ambitious strategy for the sector is making many companies eye the US as the place to be.
Pragmatic Semiconductor, a startup based in Cambridge, England which produces non-silicon chips, warned earlier this year that it may be forced to relocate overseas if the government doesn’t issue a plan for the industry soon.
IQE (IQE.L), a microchip firm in the semiconductor “cluster” in Newport, Wales, also warned it may be forced to relocate to the US or EU if the government did not act soon.
Americo Lemos, chief executive of IQE, Britain's only listed chip manufacturer, said the UK risked falling behind the US' £45bn chip industry subsidies and needs to act now.
He said: "When you look at it, the EU is funding specific programs. And the US is funding the industry. So we believe the CHIPS Act resources will start to be allocated this year.
"So that's why I'm emphasising for the UK to also get the funds released, including manufacturing during the course of this year. It is very important that we don't lose momentum."
British microchip company Arm recently decided to float in New York rather than London this year, dealing a major blow to Sunak’s ambitions to make the City the first choice for tech company flotations.
Rene Haas, Arm’s chief executive, said the decision to float its shares on Wall Street came despite talks with the UK government and Financial Conduct Authority (FCA).
Still, the decision is a blow to London, where Arm was listed for 18 years until it was bought by SoftBank (9984.T) in 2016 in a $32bn deal that received the minimum level of scrutiny by the government, leading to criticism that it had allowed the UK's biggest tech success to be bought by foreign investors.
Sometimes referred to as the "crown jewel" of the UK's technology sector, Arm was founded in Cambridge in 1990 and designs the chips that power most of the world’s smartphones.
The IPO is expected to be one of the biggest of 2023 with a potential valuation of $70bn according to bankers pitching the company on the US float.
Victoria Scholar, head of investment at Interactive Investor, at the time said the snub was a “kick in the teeth” for London.
Listing a firm on a stock exchange takes it from being a private to a public company, with investors able to buy and sell shares of a company's stock on specific exchanges. US exchanges are seen to offer higher profiles and valuations.
The US and European allure
The move has also left rising star Pragmatic Semiconductor to consider a listing abroad too.
Pragmatic Semiconductor, which makes flexible circuit boards that can be embedded into a wide range of products, from clothing to packaging, is mulling a move to the US to take advantage of the country’s landmark CHIPS Act that provides tax breaks for chip makers.
Pragmatic Semiconductor employs 200 people across its headquarters in Cambridge and at two production sites in Country Durham.
MPs have described the UK semiconductor industry as “comparatively small” when measured against Asian countries and the US, with clusters in Scotland, south Wales, Cambridge, and the north-east and south-west of England.
The UK's semiconductor sector is valued at $13bn, according to one recent estimate. That might sound like a lot, but the global industry is said to be worth $580bn.
Semiconductors have been described as the oil of the 21st century due to the integral role they play in everything from mobile phones to space ships.
Consultant McKinsey predicts chip sales will reach $1tn by 2030, driven by three sectors: automotive, computation and data storage, and wireless.
UK wants to be a technology superpower. Can it?
The UK has built niche strengths and competitive advantage in designing compound semiconductors for specialist applications in, for example, defence and telecoms.
Still, a parliamentary report last autumn said that the UK only produced 0.5% of the world's semiconductors.
The country is also renowned for its role in developing razor-thin semiconductor wafers made from graphene.
The UK’s national semiconductor strategy would focus on the country’s existing strengths in the technology.
Under the strategy, the planned decade-long investment would be targeted at areas such as design, research and development.
British chip companies will be offered £200m between 2023 and 2025, with the remaining £800m to be parcelled out by the end of 2033, according to the government’s National Semiconductor Strategy, which was released on Friday after a two-year wait.
“Semiconductors underpin the devices we use every day and will be crucial to advancing the technologies of tomorrow,” said prime minister Sunak.
“Our new strategy focuses our efforts on where our strengths lie, in areas like research and design, so we can build our competitive edge on the global stage."
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.
Semiconductors, and the mainly East Asia-based supply chain behind them, have become a thorny issue for world governments after a global shortage led to supply problems for major automakers and electronics manufacturers.
The pandemic exposed an over-reliance on manufacturers from Taiwan and China for semiconductor components. That dependency has become fraught with tensions between China and Taiwan on the rise.