A new security partnership to build a silicon valley in South Wales

Sometimes it’s easy to forget in our obsession with developments such as AI that our complex software ecosystems are reliant on little bits of metamorphic rock. Microscopic pieces of silicon, refined from quartzite, are manufactured in increasingly convoluted supply chains into semiconductors that power every technology.

We’re surrounded by thousands of these chips from the car in the driveway to the cat on the sofa – there are 145 chips in existence for every person on earth. A technology which was developed to help the US military gain advantage during the Cold War developed its full potential in consumer goods and communication tools.

One of the challenges is that 90% of the most advanced chips are made not just in one country – Taiwan, but the majority of those are manufactured by one company – TSMC. We saw the collapse of supply chains for cars, computers and a range of white goods during the pandemic as international trade was choked. There are obvious security concerns over the dominance on one company in one country with such a vital component.  As a member of the Nato Parliamentary Assembly (PA), we discuss this risk regularly.

We’ve recently seen the £140m acquisition of Newport Wafer Fab, the biggest microchip factory in the UK by the American firm Vishay. Given the concerns that were raised about the previous owner it’s positive to see our most important allies helping secure jobs and growth in South Wales.

But the sector needs support – and we can’t expect to do everything in the UK. Newport Wafer Fab has had nine different owners in recent years – we need stability and strategic investment to grow our domestic capability.

The West still has certain strategic advantages. Our research and design teams are developing some of the most advanced semiconductors in the world. While China may be developing some of the world’s cutting edge AI applications, many of these run on imported chips from the US. Few people realise that a key component in smartphone facial recognition systems is made in South Wales.

The UK is well placed to exploit the opportunity to diversify the supply chain and increase the West’s economic security. There are a number of industrial centres of excellence across the country, including the world’s first compound semiconductor hub in Newport. Compound semiconductors can be described as a motorway, if a silicon semiconductor is termed as a country lane!

This strength is built on two pillars: innovative R&D driven by world class research universities and a skilled workforce in a sector to which it can be difficult to recruit.

We know the sector will grow significantly in the transition to net zero – more advanced semiconductors will be required to power electric vehicles and allow more efficient power conversion into smart grids from wind turbines and other renewables.

We need agreement with our allies to develop our industry – the Five Eyes partnership could be a framework to support our tech sector to build the critical infrastructure that can protect our national security and ensure the continued economic power of the UK and our allies. This will answer much of the concerns that the Nato PA has highlighted. 

The UK has prioritised investment in R&D through its National Semiconductor Strategy and we are home to world leading chip designers. But we need to ensure that skilled manufacturing jobs do not go overseas in the race to secure supply chains. I also think that the UK government need to revise its strategy to include manufacturing of the chips, rather than focusing on R&D and design.

In our post-Brexit world, we have an opportunity to have a more flexible approach to sectoral incentives to enable economic growth in areas of the country that would benefit from levelling up.

The semiconductor industry is the fourth biggest in the world behind oil production, automotive and oil refining and distribution and revenues may reach US $1tn dollars by the end of this decade. According to CS Connected, for each semiconductor job almost six additional jobs are created in supply chains and the wider economy.

We can already see significant investment in countries like India and Japan who are pledging billions to support advanced manufacturing. Closer to home, Spain has announced investments of €12.25bn in the semiconductor industry by 2027 while Germany is investing around €20bn.

Working closely with our allies, we can exploit the potential to create well paid, skilled jobs and invest in our national security.  The UK has a strong foundation and it is our responsibility to ensure we build further.

Alun Cairns is MP for Vale of Glamorgan and former secretary of state for Wales. He is the chair of the Semiconductor All-Party Parliamentary Group