The challenges of securing a UK 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 the 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The European Commission has also published draft guidance under the second pillar of the European Chips Act covering the designation of chip fabs as integrated production and open EU foundry facilities.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

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 Rush 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.”