UK chip sector cannot ‘recreate Taiwan in south Wales’, says tech minister

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Britain’s semiconductor industry must focus on niche manufacturing and designs rather than seek to challenge international rivals in chipmaking, according to the UK’s tech minister, who admitted that “we are not going to recreate Taiwan in south Wales”.

Paul Scully, who leads the government’s digital economy strategy, told the Financial Times that the UK will not join the race taking place across Asia, Europe and the US to build advanced chip-building facilities backed by billions of dollars of state investment.

Instead, the government national semiconductor strategy unveiled in May intends to offer British chip companies just £1bn over the next decade. That money will be focused on existing strengths such as in chip designs — an area dominated by the likes of Cambridge-based Arm — as the country looks to develop new winners in the global industry.

“To leverage our position, it is about advanced packaging and design,” he said, arguing the UK should be an “integral part” of the global chips supply chain rather than compete for manufacturing. “We are not going to recreate Taiwan in south Wales,” he said. “It’s just not going to happen.”

Other nations have deployed more aggressive attempts to woo the global chip industry, particularly at a time when mounting geopolitical tensions have led nations to seek to secure access to crucial components.

The US Chips Act provides $52bn in incentives to encourage companies to build fabrication plants to manufacture chips, while the EU’s European Chips Act has promised €43bn of state aid for the sector.

Germany has offered billions in subsidies to Intel to build a chip facility in the country, seeking an economic boost from thousands of jobs that are expected to come from the project.

“The opportunity that we have if we get this right, [because of] the ramping-up of the need for semiconductors, is huge,” said Scully. “So we can really make the most of that, but we’re not going to do it through just a massive load of fabs in the UK.”

The UK’s new strategy comes amid growing concern that some of the country’s most significant chip companies have been sold to international investors in recent years.

On Thursday, the government revealed members of its long-awaited semiconductor advisory panel to oversee the UK’s National Semiconductor Strategy.

The panel will be co-chaired by Scully and Dr Jalal Bagherli, former chief of Reading-based Dialog Semiconductor, an Apple chip supplier that was acquired by Japan’s Renesas for €4.8bn in 2021.

Other members include Eben Upton, founder of Raspberry Pi, the bestselling British computer to date, and Richard Grisenthwaite, chief architect at Arm, which was bought by SoftBank for £24.3bn in 2016. Arm is planning to return to the public markets with a New York IPO later this year but has ruled out a London listing.

However, the sale of Newport Wafer Fab by Chinese-owned Nexperia was blocked due to security concerns as the UK government moves to unwind the acquisition under new powers that allow it to halt transactions involving strategic national assets.

“We want companies to be able to grow scale here, if they exit, it would preferably be to a UK company,” said Scully. “We don’t want to be selling IP unnecessarily from an economic point of view, but that’s not for us to block in any way.”

Some of the members of the new advisory panel have been critics of the UK’s recent semiconductor policies. Americo Lemos, chief executive of Cardiff-based compound semiconductor wafer manufacturer IQE, previously told The Times his company could leave the UK in favour of the US or Europe if the financial incentives laid out by rival governments were better.

Amelia Armour, another panel member and partner at venture capital firm Amadeus Capital Partners, has criticised the UK for lacking ambition with its national strategy and providing a “disappointing” level of investment.

Bagherli said it was natural for the industry to ask for more money, but was otherwise aligned with the government on its more focused strategy.

“Many of the US companies in the semiconductor industry cannot function if they don’t have access to a licence from Arm,” he said. “That comes from the UK. It doesn’t matter where it is listed, the IP is here, and the design is here.”