phonlamaiphoto -

The challenges of securing a UK semiconductor supply chain

The UK’s national semiconductor strategy aims to establish the country's credentials as a leader in the sector. We look at how it stacks up

This article can also be found in the Premium Editorial Download: Computer Weekly: What’s it like being the IT chief at Man Utd?

The recent earthquake in Taiwan has further highlighted the fragility of the semiconductor chip supply chain. Any impact on the supply chain has a direct influence on hardware manufacturers to supply devices that rely heavily on a smooth supply of chips. This, in turn, has a direct influence on the ability of IT decision-makers to buy IT equipment.

James Longster, a partner in the technology and commercial transactions department at Travers Smith, said: “There’s obviously a significant risk in relying on chip producers based in Taiwan, particularly given the threats from China to the island’s independence and events like the recent earthquake there.”

In 2022, McKinsey looked at the huge long-term investment across design, manufacture, tooling and packaging required for making chips that can be used in electronic devices. It cited ASML, for instance, which spent 17 years and about $7bn developing its extreme-ultraviolet lithography technology, including the ability to produce the technology at volume.

“The long R&D timeline was worthwhile, since the tool is now a major source of revenue for ASML,” reported McKinsey senior partners Ondrej Burkacky and Marc de Jong. They also noted that leading chip firm Arm spent six years developing a 64-bit computing processor that is now a significant source of the company’s revenue.

The UK’s national semiconductor strategy recognises the economic significance of chips, and the Department for Science, Innovation and Technology (DSIT) has investigated chip supply chain resilience.

No single country or region has strengths in all aspects of the chip supply chain. Taiwan may be associated with fabrication plants, or fabs; Europe leads the way in tooling; and according to Precedence Research, Asia-Pacific has the largest market share in semiconductor packaging. But no country is fully resilient in terms of its semiconductor supply chain.

Three options for securing chip supply chains

In October 2023, Cambridge University’s department of engineering published the UK semiconductor infrastructure initiative feasibility study. The study, commissioned by DSIT, outlined three approaches the UK could adopt to secure its chip supply chain.

A DSIT study outlines three approaches the UK could adopt to secure its chip supply chain: build a UK facility that offers the full manufacturing process; use an existing onshore facility for this; continue using offshore fabs but with the UK undertaking post-production onshore

The first option is to build a UK facility that would offer the full manufacturing process. The second is for the UK to use an existing onshore facility for this. The third is the continued use of offshore fabs but with the UK undertaking post-production onshore.

The latter would involve a UK facility taking in the integrated circuit (IC) etched into a semiconductor wafer during the fabrication process and packaging it in a protective case, which enables ICs to be installed in the printed circuit boards (PCBs) used in electronic devices.

The US and the EU each appear to be offering subsidies and grants to entice major chip firms to develop local manufacturing.

In the US, the Department of Commerce announced a preliminary agreement with Taiwan Semiconductor Manufacturing Company (TSMC) to support the construction of leading-edge semiconductor fabs after securing a $6.6bn grant. President Joe Biden said TSMC would also build a third chip factory in Phoenix.

In Europe, as part of the €43bn European Chips Act earmarked for securing the semiconductor supply chain, Intel secured $10bn of subsidies from Germany last June to build a fab. Fabs are also being built in Poland and Ireland.

The European Commission has also published draft guidance under the second pillar of the European Chips Act covering the designation of chip fabs as integrated production and open EU foundry facilities. These so-called “first-of-a-kind” facilities are new or upgraded semiconductor manufacturing facilities providing what the commission sees as a dimension of innovation not yet present in the EU market. 

In the UK, citing national security concerns, the government blocked Nexperia’s bid to acquire Newport Wafer, the UK’s largest semiconductor fab, but eventually agreed to let US-headquartered Vishay take it over. The acquisition was completed in March. Arm, meanwhile, chose to list on the Nasdaq rather than the London Stock Exchange, despite pressure to list its shares in London. Previously, the UK government’s national security concerns were one of the barriers that prevented Nvidia from acquiring Arm.

Recent funding as part of the national semiconductor strategy suggests the UK is focusing on the third option set out in DSIT’s UK semiconductor infrastructure initiative feasibility study, where semiconductor wafers are made into integrated circuits offshore and then packaged in the UK.

In March, the government announced a £16.6m investment to encourage innovations in advanced packaging, which it said could help to reduce the power consumption and cooling requirements of semiconductors. The funding is for open-access tools covering a range of processes involved with designing and testing these semiconductors, including “slicing” silicon wafers into smaller chips and bonding complex materials together to make chips.

Building relationships and attracting investors

Some industry experts believe the UK government should emulate the US and EU and try to encourage major semiconductor firms to invest more in the UK.

The government's national semiconductor strategy is mainly focused on boosting areas where the UK either already has or could gain strategic advantage
James Longster, Travers Smith

Russ Shaw, founder of Tech London Advocates, said: “If Intel or whoever wants to set up something here, that would be really useful, and maybe that’s where we go with some of this. But nothing’s in place yet.” He added that such industry initiatives take a long time to build and nurture.

Shaw believes building these relationships with chipmakers should be the next area of focus for the national semiconductor strategy. “We’re not going to build the high-end fabs, but we are going to have some capability here that we can rely on. So if there is supply chain disruption, like we saw during the pandemic, or if we’re seeing potential international partnerships come under strain, then we have some protection in our supply chain,” he said.

However, as Travers Smith’s Longster notes, a medium-sized power like the UK cannot realistically become self-sufficient in chip manufacture. “The government's national semiconductor strategy is mainly focused on boosting areas where the UK either already has or could gain strategic advantage,” he said.

One area the national semiconductor strategy focuses on is compound semiconductors, which are used in power electronics, photonics and communications such as the ORanGaN project consortium announced in January. This project aims to create a new sovereign supply chain to develop UK radio frequency (RF) gallium nitride (GaN) products and devices to be used in 5G communications.

Strategy is ‘on track’ and ‘working’

Beyond government funding and collaboration efforts, there have been questions over whether the national semiconductor strategy will be delayed, especially as UK Parliament prepares for an imminent general election.

Responding to questions over the possibility of delays, a government spokesperson said: “There has been no change in our timeline for the delivery of our £1bn semiconductor strategy – it remains on track, and it is working. We’re taking a targeted approach to growing the British sector and protecting national security by doubling down on our key strengths.

“In addition, we have provided UK chip makers with access to the UK Infrastructure Bank’s £22bn investment pot – which has already enabled £60m investment in Pragmatic – and joined the Horizon Europe-backed Chips Joint Undertaking, securing access to a €1.3bn pot for UK scientists and researchers.”

Read more about the semiconductor supply chain

Read more on Chips and processor hardware

Data Center
Data Management