Risks and opportunities for the UK chip sector

Chip innovation in Wales

South Wales has been a heartland for semiconductor innovation. It was where Inmos chips were originally manufactured, for example.

In the late 1970s, the Jim Callaghan Labour government invested £25m of public money into chip startup Inmos to fuel the UK semiconductor sector and make the country self-sufficient in this technology. When the Conservatives got into power, under prime minister Margaret Thatcher, public funding was pulled. In 1984, Inmos was sold to Thorn EMI and the Treasury earned £125m (which is approximately £594m in today’s money).

Now, 40 years on, the current Conservative government is looking to build out a national semiconductor strategy. In May 2023, it announced the UK Semiconductor Infrastructure Initiative, comprising up to £200m of funding in the semiconductor sector from 2023 to 2025 and up to £1bn in the next decade.

Bhatti believes it is important for the UK to build on areas of specialisation such as compound semiconductors and safeguard chip supply chains, while also protecting national security interests. He said “Wales is a great example of” specialism in semiconductor technologies, where “you’ve got a niche specialism in compound semiconductors, especially around research and development in the semiconductor industry”.

Growth potential

According to Bhatti, there is huge growth potential for the UK to capitalise on. “The global market is destined to be about £350bn in turnover by 2030, and here in the UK, we are going to have a massive chunk of that,” he said.

Bhatti is confident that what has been achieved in Wales can be replicated in other parts of the UK. “It’s a great story of economic growth and economic potential,” he added.

But this potential is being pulled in different directions. There are national security concerns, questions over how to attract and retain talent, and the government’s policy on net migration. All of these factors will likely influence how well the UK semiconductor industry can thrive.

For instance, Inmos’s original fab has had several owners. The facility, called Newport Fab, was acquired by Chinese-owned Nexperia in 2022. But the UK government ordered the company to divest 86% of its stake in the south Wales factory due to national security concerns. In November 2023, Vishay, a US-headquartered manufacturer, agreed to buy Nexperia’s stake in Newport Wafer Fab in November 2023, signalling what Vishay describes as “a new start and new investment” in the fab.

Attracting talent

Turning to the government’s policy on immigration, Bhatti said the home secretary, James Cleverly, has spoken about a system that attracts the brightest and the most talented from across the world. Bhatti’s ambition is to make sure the UK can attract the best and brightest.

“We are doing lots of work streamlining our visa route and making sure this country is an incredibly attractive place for homegrown and international talent,” he said.

In the past, software was regarded as a big opportunity for people who wanted to specialise in computer science. But chip design is about hardware engineering, a sector that has traditionally had far fewer openings. The advent of artificial intelligence (AI) and the need to build and program hardware directly has led to greater interest in people with skills for building and programming AI-optimised hardware. 

On the homegrown skills front, Bhatti said there was “a need for high-tech skills” but there was “no easy answer”. Pushing hard on digital skills is one of the big areas he and his team plan to focus on. But digital skills are not necessarily applicable to the highly specialised area of chip design. 

However, rather than having the government trying to pick winners in terms of the high-tech skills UK industry will need, Bhatti said: “We can almost play a facilitation role.” This, he said, will make it attractive for people who want a career in tech to go down the high-tech route. This includes careers advice, helping people choose the right courses and relevant job vacancies.

Going after niches in the semiconductor sector could be regarded as a smart move by the government to differentiate the UK’s chip strategy and perhaps replicate the success of ARM. But these commitments from the current administration are long term, which means any future government may come in with different priorities.