In the late 1990s, Newcastle was home to a grand microchip factory symbolizing British ambition in the global technology arena. However, Siemens shut down the facility just 18 months after its opening, leaving a thousand jobs lost and millions in taxpayer support unpaid.
Fast-forward to 2023, and the UK faces the need to recreate a thriving microchip industry. The Covid-19 pandemic and escalating geopolitical tensions have exposed the fragility of global supply chains.
Britain races to catch up with countries like the US, EU, and China, investing heavily in domestic microchip production.
Years of outsourcing and industry drift have left the UK with only a minor stake in the global microchip market, with just 0.5% of semiconductor sales.
However, acknowledging the importance of microchips, the UK government plans to invest £1 billion in semiconductor research and design.
Yet, this investment might fall short of the colossal subsidies provided by other nations, like Joe Biden’s $52 billion Chips Act and the EU’s €43 billion subsidies.
The UK’s strategy focuses on its strengths, like chip design, where companies like Cambridge-based Arm excel.
However, there’s a tension between ambition and practicality. While the UK desires to scale up its microchip industry, companies are drawn by the substantial incentives offered abroad, raising the question of how to compete without similar support.
Investment on Semiconductor
Investing in the semiconductor business involves juggling economic factors and geographical considerations.
Factors like space, skilled workers, energy, water access, and transportation infrastructure play pivotal roles in the location of microchip factories.
Over time, the industry migrated offshore due to global competition, notably from China.
Taiwan has become a dominant player in microchip production, with its champion, Taiwan Semiconductor Manufacturing Company (TSMC), commanding 50% of the world market.
However, the Covid-19 pandemic highlighted the vulnerability of supply chains concentrated in China and Taiwan, prompting a reevaluation of the risk-reward trade-off.
The UK’s history of offshoring and the rapid turnover of foreign investment projects have proven challenging.
While past investments like Siemens and Fujitsu’s microchip ventures left, there’s hope in the lingering legacy of skilled workers.
The government aims to build on existing hi-tech manufacturing clusters, yet competition remains fierce as other countries offer substantial incentives.