The UK remains a semiconductor power. Arm, like myself based in Cambridge, designs many of the world’s most energy-efficient and powerful chips. But the UK is too small to act alone. It needs partners.
After multiple delays, London finally has outlined its chips strategy. The 60-plus page document represents a step forward — and yet it contains serious gaps. It neglects the need to work with the EU and fails to detail how to confront China.
On the positive side, the first pillar of the strategy “Grow the domestic sector” targets start-ups and innovation. Unlike the EU and US, the UK will avoid subsidizing incumbents.
This should allow for more “bang for the buck,” since the amount of UK funding available is small compared to the two giants. The UK plans to spend £1 billion on R&D in startups and SMEs — compared to the US’s $11 billion on R&D in its US CHIPS Act. Dedicated semiconductor competitions will be organized and start-ups can access up to £20 million of non-dilutive funding under certain conditions.
On the negative side, the plan to help startups could benefit from additional ambition. No mention is made of incentivizing pension funds. or profitable large companies, both domestic and foreign, to invest in UK tech. Above all, no mention is made of collaboration with the EU, with its highly skilled base of engineers which has huge synergies with the UK ecosystem.
Instead, London targets collaboration with Korea, Taiwan, and Japan, in the latter case exchanging academics and engineers
The big question is where exactly will the UK secure its semiconductor supply from, and how? No mention is made of Germany and France, where big new publicly subsidized chip plants are being built. Perhaps this is too politically sensitive for the current government? As a result, the plan for “mitigating supply chain disruptions” lacks the substance needed to make a real difference, with no new investment or policy change.
The “Protect our national security” section has a solid basis in the Digital Security by Design initiative. This consortium, led by Arm — and the University of Cambridge, designs new processor hardware that is inherently secure, whereas current processors need security bolted-on.
The main gap about security is how to confront Beijing. China, or any other bad actors, are never targeted by name. The UK strategy only speaks about Beijing as producing “91% of the world’s gallium” and about its huge state investment. No mention of how the Chinese are attempting to force Arm to cooperate with Chinese semiconductor industry, or how Arms entire assets in China were effectively stolen from its shareholders.
The UK’s record on pushing back against China is mixed. While the new strategy calls to protect security sensitive UK assets, the government seems to apply the principles inconsistently. It cleared the acquisition of flow sensor developer Flusso, a Cambridge startup, by “a company and a global private equity fund” according to the Flusso press release. The acquiror later turned out to be one entity, Shanghai Sierchi Enterprise Management Partnership LP.
After a year of indecision, the government blocked the Chinese acquisition of the indebted Welsh semiconductor manufacturer Newport Wafer Fab. This is a production facility for legacy technologies, and looks much less strategic than Flusso.
The issue is complex and the new strategy fails to answer a key question: how would the likes of Flusso get an exit if a Chinese acquisition is blocked? Without an exit route, investors will not invest. What kind of corporate or institutional fund could the government facilitate to substitute for Chinese acquisitions of strategic UK tech assets?
Both the US and EU have passed ambitious Chips Acts. Overall, the UK strategy represents an improvement on the EU’s plans through a more targeted use of more limited taxpayer funds, but remains less ambitious than the US.
The EU is pouring €43 billion of public funding into semiconductors. Its focus is on subsidizing struggling incumbents, not sparking innovation or creating an ecosystem. Much of the money is going to Germany’s Infineon to build a plant near Dresden, ST Microelectronics to build in France, and to Intel to expand in Germany. The EU plan sets an arbitrary — and probably unrealistic — goal of achieving 20% global market share, which will not in any case achieve the kind of technology sovereignty that the EU aspires to.
Instead, the EU should have focused on innovative R&D, while supporting its strengths in advanced imaging and chemical compounds. Both fields are crucial to the semiconductor supply chain and the EU holds competitive advantage, thanks to the likes of ASML in the Netherlands and BASF and Merck in Germany. These companies are subject to export controls to China.
The US CHIPS Act supports incumbent manufacturing – as well as the strategic goal of bringing world-leader Taiwan Semiconductor to the US. It also supports research and development and facilitates scale-up of promising startups. It has a clear focus on national security and sets out clear rules for restricting Chinese subversion.
The UK finds itself caught between the EU and US. Its natural partner is Europe. UK chip design is well suited to benefit from the increasing French and German chip investments. The UK’s new semiconductor strategy is positive and a step forward. But it misses the opportunity for a big win-win cross-Channel cooperation.
Christopher Cytera is a Non-resident senior fellow with the Digital Innovation Initiative at the Center for European Policy Analysis and a technology business executive with over 30 years experience in semiconductors, electronics, communications, video, and imaging.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.