UK must cut chip imports from risky parts of world, review says

Britain needs to reduce its reliance on semiconductor imports from geopolitically sensitive parts of the world like Taiwan, the government will argue when it publishes a long-overdue review of the sector.

The new strategy, expected within weeks, will also offer hundreds of millions of pounds in long-term “targeted” financial support to the sector with a focus on the more technological parts of the industry, according to government officials familiar with the draft report. .

It will also address the need to diversify supply chains in the industry by working more closely with friendly international counterparts, they said.

Ministers launched the review after the Covid-19 pandemic exposed the fragility of the global semiconductor supply chain, leading to a global chip shortage, with severe repercussions for many industries, including car manufacturing.

Those concerns have been compounded by China’s increasingly aggressive stance on Taiwan, which dominates the global market for high-end chipmaking.

But the political turmoil last year, which saw three different prime ministers at 10 Downing Street in less than two months, delayed the report and has left Britain trailing behind other countries in responding to future threats from disruption of the supply chain.

The response from other major economies has triggered what has been called a “subsidy race” on chips. Last year, the US government pledged to inject $52 billion into its semiconductor sector. Meanwhile, the EU has established a €43 billion investment plan for the industry, which has helped attract Intel will set up a $17 billion plant in Germany.

The delay in publishing the review in the UK has caused frustration among industry executives, given the fast pace at which other countries are moving.

Although the UK has a marginal role in chipmaking, it does have some areas of strength, relative to its size. It is home to two of the world’s leading chip design companies, Arm and Imagination Technologies, which account for around 40 percent of global intellectual property development in the sector.

It is also home to several companies developing compound semiconductors, which are made from materials other than silicon and are seen as a promising new area of ​​research.

Other countries dominate parts of the industry, including Japan, which is a leading manufacturer of wafer-handling machinery, and the US, which produces nearly all of the electronic design automation software used in chip manufacturing.

A recent report by the House of Commons select committee on business described a Chinese invasion of Taiwan that led to the halting of semiconductor exports” as “a distinct potential threat.”

It added: “Such an act, together with the combined dominance of the Chinese and Taiwanese semiconductor markets, poses a material risk to the global economy and military and defense production capabilities.” The UK does not have plants that can produce the most advanced chips, according to the report.

The warning echoed one from the US commerce secretary. Gina Raimondo last year, who said: “Our dependence on Taiwan for chips is unsustainable and insecure.”

Last year, the government blocked the takeover of Newport Wafer Fab, Britain’s largest semiconductor plant, by Nexperia, a Chinese-owned company.

A government figure said the sector had been “critically under pressure” in recent years with countries vying for influence and control over semiconductor technologies.

But the review will recognize that the UK cannot and should not meet all of its semiconductor needs domestically. Instead, it will recommend that the country focus its efforts on value-added areas such as research and design, compound semiconductors and “advanced packaging,” whereby multiple chips are combined into a single product.

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