UK government unveils long-awaited £1 billion semiconductor strategy

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The UK government will offer chip companies up to £1 billion over the next decade, aimed at boosting Britain’s resilience in an industry that has suffered from severe supply chain disruptions and faces the specter of worsening geopolitical tensions.

UK chip companies will be offered £200m between 2023 and 2025, with the remaining £800m to be analyzed by the end of 2033, according to the government’s National Semiconductor Strategy, which was released on Friday after two years of wait.

The amount pledged by the government is dwarfed by Washington’s Chips Act, which provides $52 billion in subsidies and incentives to encourage semiconductor companies to build manufacturing plants in the United States. The EU also launched its own “European Chips Act” with €43 billion in state aid.

British officials say the sums involved were proportionate because the British government does not believe the investment required to build factories in the UK – which can cost up to $10 billion – was justified by returns.

Instead, the UK plans to focus its resources on areas where British firms have a “strategic advantage,” such as compound semiconductors made from multiple new materials, while also forging alliances with manufacturing hubs such as Japan.

Amelia Armour, a partner at Amadeus Capital Partners, a British venture capital firm that invests in chip startups, said the government’s ambitions were “lacking”.

“The level of investment announced for the next two years is disappointing, especially given that the UK has to try to keep pace with the investment levels announced under the EU and US Chip Acts,” he said. “£200m spread across many initiatives will not achieve much and will need to be allocated in a very targeted way to have an impact.”

The strategy marks the first time the UK government has launched a major support program for the semiconductor sector since the 1980s, both a signal of the growing importance of chips to the global economy and an admission that the industry has struggled to keep pace with the rise of high-tech manufacturing in Asia over the past four decades.

“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,” Prime Minister Rishi Sunak said.

The launch comes as the UK’s leading chip design firm, Cambridge-based Arm, is planning to go public in the US later this year after its parent company SoftBank ruled out a London listing.

Rene Haas, Arm’s chief executive, said: “The UK is a major hub of innovation and talent for both Arm and the industry at large and we look forward to working with government and other partners to help make this [strategy] a reality.”

Nigel Toon, chief executive of Graphcore, the AI ​​chip designer that is one of the UK’s most valuable start-ups, welcomed the “recognition of the valuable contribution the industry makes to our national economy”.

However, he added: “Obviously the overall level of investment, and the timing over which this investment will be spent, is at a modest level compared to the much larger investments that are taking place in other countries, including direct competitors such as Germany, Korea South and Japan”.

The government said it had already provided £539 million in research grants and £214 million directly to small and medium-sized enterprises in the semiconductor sector over the past decade. It also plans to help ensure ‘critical’ industries are better prepared for potential supply chain disruptions similar to those that have occurred during the Covid-19 pandemic.

The threat of worsening relations between China and Taiwan, which produces more than 60% of the world’s chips, has given further impetus to Western governments to strengthen their domestic industries and strengthen partnerships with allied nations.

On Thursday, Sunak announced a “semiconductor partnership” with the Japanese government that would include “ambitious R&D cooperation and exchange of expertise,” strengthening each country’s domestic sectors, and strengthening supply chain resilience.

It was part of a larger Hiroshima Agreement between the UK and Japan, which provided for closer economic, security, energy and technological cooperation between the two nations.

Other chip companies, including California-based Qualcomm, have welcomed the UK’s semiconductor strategy. Americo Lemos, chief executive of compound semiconductor wafer maker IQE, said the plan “rightly focuses on areas where the UK is a global leader.”