Front End | Electronic Components Supply Network A UK semiconductor strategy?


In May ’23 the UK Government - with much fanfare – announced its ‘UK National Semiconductor Strategy’ but it met with very mixed reviews. While welcoming the initiative The Electronic Components Supply Network (ecsn) aligned with other commentators, industry insiders and informed members of the public over concerns about why the UK’s £1bn investment over 10 years is so tiny in comparison to the $50bn+ investments being made in Europe and the USA. All UK corporate and personal taxpayers will be contributing towards the government’s initiative so it’s worth reviewing what has been achieved to date before trying to decide if the ‘UK National Semiconductor Strategy’ represents good value for money, a much more individual and subjective judgement. In this article ecsn chairman Adam Fletcher examines the widely held belief that the UK National Semiconductor Strategy is merely Government PR policy fluff and shares his thoughts on what other strategies could still be adopted and whether the initiative may ultimately succeed.


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ne positive benefit of the current shortage of semiconductors is that it has significantly raised the public profile of the electronics components industry in terms of the contribution it makes to the UK economy, and has also boosted awareness of a growing general dependence on electronics technology. The government’s UK National Semiconductor Strategy has been prompted by our country’s highly vocal and politically well leveraged automotive manufacturing sector, where production has been severely curtailed by the lack of components. Much of the problem, however, is of their own making: As the COVID pandemic hit and demand for their production waned automotive OEMs cynically cancelled their existing order backlogs on their semiconductor suppliers and, as a result, were faced with real industry manufacturing lead-times of 16-to 20 weeks for their new orders once the situation began to stabilise. To be fair it wasn’t just a lack of semiconductors that cost the UK automotive manufacturing sector £1m+ in lost production, it was also negatively impacted by wider sourcing issues and disruptions to international logistics.


Geographically rebalancing semiconductor manufacturing For many years semiconductor industry analysts have been highlighting their concerns that a very small number of semiconductor manufacturers dominate the industry and that their geographic


12 June 2023


concentration in Asia - particularly in Taiwan - represents a huge potential risk to OEMs worldwide and to the global economy in general. The US and Europe can still boast a sizable domestic semiconductor manufacturing capacity, but the combined output from these continents comprises less than 20 per cent of global demand. The ‘outsourcing’ of primarily US-based semiconductor technologies to Asia has been industry practice since the mid-1970s, driven primarily by the cost reductions achievable in countries where primary costs factors such as land and labour are much lower. Over the past 40 years industrialists in these countries have invested heavily in the skills and infrastructure needed to support not only their silicon foundry (contract semiconductor production) businesses but also in the back-end test, packaging and final test facilities essential to complete the entire manufacturing process. Many western technologists still find their business proposition compelling. Many semiconductor wafers manufactured in the US and Europe today find their way to Asia for back-end test package and assembly.


US and Europe chip acts The huge investment that the EU and USA is making in semiconductor manufacturing is primarily aimed at realigning capacity away from Asia. And the investment needs to be huge! The cost of a state-of- the-art semiconductor foundry today is in the range $6bn-to $10bn, and that’s by no means the end of it. These facilities


Components in Electronics


require huge ongoing investment to keep them at the leading edge, otherwise they fall behind and become out of date within three years. Every two to three years in the technology node cycle the semiconductor manufacturer must re-invest almost all current and foreseeable profits into the next generation of technology. The new government backed investments seek to support and encourage US and European semiconductor foundries to upgrade their existing operations or even establish new ones, so they are better able to compete with established Asian manufacturers. This is an entirely laudable aim and possibly needed long-term, but the unwanted consequence of an over-investment in foundry capacity is that it will undoubtedly trigger a near-term glut of components before economic growth begins to consume the increased availability. In the meantime, semiconductor manufacturers are having to contend with very real problems centred around technology skills shortages, technology transfer, cultural diversity and potentially escalating costs.


The UK National Semiconductor Strategy - a summary It’s a sad fact that the UK has neither the funding nor the skills necessary to invest in new semiconductor foundries. The UK National Semiconductor Strategy outlines funding of £200M over the next two years and up to £1bn by 2033 but doesn’t specify exactly the areas in which the money is to be invested. Presumably this will be the function of the yet-to-be-


appointed UK Semiconductor Advisory Panel. It does however recognise that it will take a generation of investment in new people and correctly identifies the skill areas that the UK must focus on going forward, such as innovation through R&D, Intellectual Property (IP) development and semiconductor design, along with emerging technologies such as compound semiconductors, which promises substantial future financial returns. It remains to be seen how much real authority the government will grant to the UK Semiconductor Advisory Panel to allocate finance to projects it considers worthy of funding and just how the money will be released and accounted for.


Concluding thoughts


This UK National Semiconductor Strategy does not represent a huge slice of overall UK GDP and associated financial budgets, but the investment should be welcomed and dependent on exactly what clever informed decisions are made, could yield a significant return for UK plc. What absolutely mustn’t happen is that money is diverted away from academic research, which as an absolute minimum should be securely “ring-fenced” and preferably boosted. The UK simply must keep on innovating. If you consider the £50K investment (a trivial sum even then) that the UK government made in INMOS in 1980 and the payback it provided by helping kick-start the semiconductor industry of the time then the £1bn investment earmarked by the UK National


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