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FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
The author is a former FT editor and head of industrial policy at Policy Exchange.
With the semiconductor trade war between the United States and China showing no signs of easing, other chip-producing countries are trying to avoid collateral damage. In Japan, which was the world leader until it was overtaken by South Korea and Taiwan, the government is supporting new businesses based on novel technology to develop cutting-edge chips. The EU is pursuing an investment program in manufacturing plants, partially funded by national governments under the European Chip Act.
What should the UK do? This is an issue that could be usefully considered by the government’s new Industrial Strategy Council, whose members have recently been announced.
Despite Arm being majority-owned by Japan’s Softbank, the country is home to one of the world’s most highly regarded semiconductor companies. The company’s stock price has risen rapidly in recent months due to its expected role in artificial intelligence applications. However, Arm is a licensor of intellectual property, not a manufacturer. Where the UK lags behind is in the manufacturing side of industry.
Decisions made by governments and businesses over the past 40 years have left the UK with a large, widely based company that rivals the three European leaders: Germany’s Infineon, the Netherlands’ NXP and Franco-Italian STMicroelectronics. There are no large-scale semiconductor manufacturers.
The UK semiconductor manufacturing industry is small, with most factories serving niche markets. A key new entrant is Vishay, the American electronics component manufacturer that has acquired what was once known as the Newport wafer factory in south Wales. Unlike previous owner Nexperia, which made silicon chips there, Vishay plans to use it as a production center for silicon carbide and gallium nitride chips. These are compound semiconductors that are becoming more popular than silicon, especially in the automotive and industrial markets, due to their low power consumption and other advantages.
Compound semiconductors currently account for approximately 20% of total semiconductor demand. This is an area where UK-based companies have made significant investments in recent years, sometimes supported by government research grants. One example is Plessey Semiconductors in Plymouth, which makes microdisplay chips based on gallium nitride. The South Wales Compound Semiconductor Cluster is comprised of several companies, including foreign-owned companies, that develop and manufacture compound semiconductors for industrial customers. Vishay’s presence in Newport should give the cluster a useful boost.
Compound semiconductors represent an opportunity for the UK, given that the sector is expanding rapidly, new applications are emerging and it is not dominated by large companies from Asia or the US. Universities are brimming with promising ideas, and the country has an active design department in the field.
What is needed to turn these ideas into products is the creation of open access foundries. This could play a similar role for compound semiconductors, serving companies that don’t have their own manufacturing capabilities like silicon-based foundries in Europe and elsewhere. It can be built on a greenfield site or adjacent to an existing manufacturing plant. Some of the funding will almost certainly come from the government. One could imagine a consortium of semiconductor companies and private investors funding two-thirds of the project, with the rest coming from the state.
As recent events have shown, semiconductors are so important from an economic and strategic point of view that the government does not have a clear plan for the industry. By focusing on compound semiconductors, we can see future possibilities.
This article is based on the author’s Policy Exchange paper, “Semiconductors: A Challenge for the New Government.”
