UK should focus on chip design, says top chipmaker

The UK government should focus support for the semiconductor sector on areas where the country already has a comparative advantage, like design rather than manufacturing, says leading UK chipmaker Imagination Technologies.

The recommendation was one of ten in a manifesto released by the Hertfordshire-based semiconductor company, which has 900 employees and was taken private off the LSE in 2017 for £550 million ($758 million, at today's rate) by a Beijing private equity fund.

Also, public funding should focus on areas where private investment is absent or insufficient, and on high-risk, pre-commercial and early-stage technologies, rather than crowding out or duplicating private investment, said the manifesto. And rather pointedly, on the heels of Brexit, the manifesto argued that the UK government needs to make sure businesses and universities have access to talent, by making it easy for skilled individuals to migrate to the UK.

Imagination is a leading representative of UK chipmaking, with a 45% market share for in-car graphics semiconductors, and 300 million cars on the road at present using its technology. It also has a 37% market share in graphics processing units (GPUs) used by smartphones. The global chip shortage, truth be told, has flattered Imagination's revenues. In the first six months of the year, these rose by a yearly 55% to $76 million. The company is currently looking to data centers and electric vehicles as its next sources of growth. It returned to the black in 2020, with $4 million in profits, after making a $18 million loss in 2019.

A long queue for the chipper

The UK's semiconductor industry has come under increasing scrutiny as the world chip market has tightened substantially during the pandemic. Adding to these concerns was the £63 million ($87 million) purchase of the UK's largest semiconductor maker, Newport Wafer Fab, by a Chinese-owned manufacturer Nexperia in July.

Former Imagination Technologies CEO Ron Black has been assembling a consortium exploring the possibility of buying back the Welsh-based fab, if the government ends up blocking the purchase. UK national security advisor Stephen Lovegrove is currently reviewing the acquisition on security grounds.

Wingtech, the Shanghai company which owns Nexperia, told shareholders in a note that "domestic and foreign industry policies" may end up blocking the purchase. Meanwhile Nvidia is attempting to acquire Cambridge-based Arm for $40 billion, though the UK government is set to examine that purchase more closely on national security grounds.

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

Altogether, the UK currently has 19 fabs producing different types of semiconductors, scattered from Plymouth to Glenrothes in Scotland, but none can make the advanced silicon chips required by the telecom, automotive and other high-tech sectors.

While the EU has a scheme to boost semiconductor production, the UK has now left that. More to the point, 85% of high-end silicon chips are made by TSMC in Taiwan.

Not only are there lengthy queues for these when the market tightens up (with big buyers like Apple going front of the queue), but China's territorial claims on Taiwan seem less theoretical after its clampdown on self-government in Hong Kong.

Industrial policy strikes back

Challenging TSMC by creating a cutting-edge fab in Europe or the US would not only be an incredibly pricey prospect, but also would require a hugely skilled base of workers who at the moment only live in Southeast Asia.

This doesn't mean some in European capitals and Washington aren't thinking about it, all the same. German economics minister Peter Altmaier told a conference last week that his government plans to invest around €3 billion ($3.6 billion) to reclaim production sites along the entire value chain of semiconductor production.

And today Cristiano Amon, CEO of the chipmaker Qualcomm, said his company was open to working with European foundries if incentive programs to boost automotive chip production on the continent attract the right partners.

In London, the government of Boris Johnson seems much less averse to the politics of industrial policy and picking winners than previous Conservative governments.

But even so, as the UK emerges from the coronavirus pandemic with a national debt of £2.1 trillion ($2.9 trillion) and with new tax increases already announced, making the country a hotbed of semiconductors may require an ability to stand firm and hold his course which would represent a new leaf for the UK's prime minister.

Related posts:

— Padraig Belton, contributing editor, special to Light Reading