Pragmatic 19 May 2023
The UK semiconductor industry has the potential to be one of the most dynamic in the world.
It is why we are proud that Pragmatic is based here, and why we are pleased that the Government’s long awaited National Semiconductor Strategy acknowledged that the UK’s semiconductor future lies in next-generation technologies, including advanced material semiconductors such as Pragmatic’s world-leading flexible chips.
It has been clear for a long time that the UK cannot compete with other parts of the world in advanced silicon semiconductors, something which would require tens of billions in investment over many years. But the UK can compete in innovative new semiconductor technologies, and we have an opportunity to be genuine world leaders in flexible chips.
As we reflect on the strategy, and the next steps needed to support the UK’s semiconductor industry, we have five clear messages for those who will now be tasked with implementing it.
1. The £1bn in funding pledged in the Strategy needs to be used wisely
Other major economies such as the USA and EU have put huge sums behind their semiconductor sectors. While many will be disappointed that the headline £1bn of funding announced for the UK is not at a similar level, and indeed does not even match that offered in the Government’s recent quantum strategy, it could nevertheless have a significant impact if used wisely.
Crucially, the Government should direct this money towards semiconductor technologies that take us beyond silicon, in specific sectors where the UK already has key strengths that can support sustainable growth businesses. In particular, we should focus on game-changing British innovations that allow a smaller amount of funding to go further, such as flexible semiconductors. As an example, while leading edge silicon semiconductor fabrication plants (fabs) cost tens of billions of dollars, Pragmatic’s innovative manufacturing model means that flexible semiconductor fabs can be constructed for just tens of millions of dollars.
2. Support for domestic semiconductor manufacturing remains critical
While the UK undoubtedly has key strengths in activities such as innovative R&D and chip design, without an underlying manufacturing base we will not capture the full benefits of this innovation. This is apparent when looking at the semiconductor value chain in other parts of the world. The supply chain crisis of the past few years has also highlighted how important chip manufacturing is to so many other industries.
This has clearly been recognised by the Government, and indeed support for semiconductor manufacturing is explicitly acknowledged in the Strategy as critical to the UK’s technology ecosystem and national security. This now needs to be translated into tangible policy, backed by investment beyond the £1bn already announced for the broader semiconductor ecosystem. Pragmatic looks forward to working with the Government to define how this can be best structured to support the creation of sustained, long-term value for the UK.
3. Recognition of the need for supply chain security is good, but more important is how it will be achieved
The semiconductor supply chain challenges of the past few years may be cyclical, but continued growth in demand will ensure that they do not go away. Equally, we should not rely on other countries to provide semiconductors which will sit at the heart of security-critical products and infrastructure. We are encouraged that the Government will work towards building a secure supply chain of semiconductor components for defence here in the UK.
The principle of increasing national and supply chain security sits at the core of our work at Pragmatic. Our innovative, distributed manufacturing model – known as ‘fab-as-a-service’ – provides a far greater degree of supply chain security, enabling agile ‘just-in-time’ chip production, often at the customer’s own site. This ensures continuity and security of supply at a local and national level.
The intent of the strategy is to be welcomed, but the specifics of how the Government will achieve semiconductor supply chain security will be crucial.
4. Public sector procurement is an important tool for supporting the UK semiconductor sector
We were hopeful that the Strategy would include a plan for how the Government would leverage public sector procurement to support the UK’s homegrown semiconductor industry, but this was missing. While it is great to have a strong export business, it will become increasingly hard to justify scaling semiconductor businesses in the UK if there is no significant local market. Government must support the sector by helping to create and shape markets in the UK, and the new Department for Science, Innovation and Technology is ideally placed to coordinate initiatives with other government departments to drive joined-up policies.
Government should commit to annual public sector procurement that creates domestic revenue opportunities for world-leading technology such as flexible semiconductors. This includes commitments to ‘buy British’, as well as working with the sector to distil information about the potential uses of innovative chips, and encouraging and incentivising public organisations such as NHS Trusts to use the technology.
5. We need strong action on securing domestic investment to ensure British semiconductor businesses stay in the UK
Whatever its merits, this Strategy will not succeed in creating real lasting value for the UK if homegrown, innovative UK semiconductor companies end up in foreign hands. The Government must help drive domestic investment in UK based late-stage semiconductor companies, to ensure that they can scale effectively while retaining their British ownership.
Promised reforms of pension regulations are very encouraging, but must now be enacted to open up more funding for British venture capital to invest in technology businesses. Matching private sector funding with direct government investment via established institutions such as the British Business Bank and British Patient Capital would enhance late-stage venture funding rounds, and also maximise British value capture from the most exciting technology scale-ups.
Finally, alternative funding models that suit the needs of technology manufacturing businesses would help them to avoid using equity to fund capital expenditure, for example through government-backed loans or loan guarantees for R&D-intensive companies.
A supportive partner
Pragmatic will shortly open our new fabrication site, Pragmatic Park in Durham. When fully commissioned, this will make us the UK’s highest volume semiconductor manufacturer. It has always been our ambition to grow and scale-up here in the UK, and consolidate our position as a world leader in innovative flexible semiconductors from a strong British base.
We hope that the Semiconductor Strategy will provide a robust framework for the Government to support this objective, as well as similar aspirations from other exciting British semiconductor businesses.