Summary

Semiconductors are essential ingredients of all modern electronic systems. They are used as switches and transistors and are the building blocks of computer chips.

Semiconductors are used in communications infrastructure, artificial intelligence, electric and autonomous vehicles, robotics, healthcare, military technology, quantum and cloud computing, and everyday consumer devices. They are a crucial technology that underpins the modern economy.

The UK has a comparatively small semiconductor industry by comparison with the US or countries in Asia, but our products have global reach, and we have world-leading capabilities in certain fields such as design, intellectual property and compound and advanced material semiconductors.

The UK does not, however, have an end-to-end supply chain. Supplies were seriously disrupted during the pandemic, and they remain potentially vulnerable to significant disruption from geopolitical factors, for instance if China were to invade Taiwan and disrupt the export of semiconductors.

The UK is particularly exposed to future disruption in global supplies of semiconductors and is falling behind other governments in mitigating such risks. Failure to do so could result in significant economic shocks to UK business.

The Government should therefore work more closely with allies, in particular with the EU and US, to safeguard security of supply, both of finished products and of the materials needed for production in the UK.

The National Security and Investment Act 2021 allows the Secretary of State to review certain acquisitions of control that may give rise to a risk to national security. The Secretary of State used these powers on 16 November to require Nexperia, a Dutch firm but ultimately Chinese-owned, to sell at least 86% of its 100% shareholding in Newport Wafer Fab, a semiconductor manufacturing facility in South Wales. We have a role, through our National Security and Investment Sub-Committee, in scrutiny of such decisions and the process behind them. We will consider the Nexperia case retrospectively, in line with international best practice, once the period for appeal has expired. In the meantime, the Department should work proactively to ensure a successful transfer of the Newport site to a new owner. Ministers should update the Committee on progress made.

Many Government departments have intersecting interests in the UK semiconductor industry. But the sector is uncertain about where primary responsibility within Government lies and to which part of Government they should address concerns. We believe that should rest with BEIS, because of its overarching responsibility for industrial strategy, business support, engagement with industry and policy on research funding, and because of its role in protecting UK industrial assets from undue control by overseas entities.

DCMS told us that it had been reviewing its approach to the semiconductor sector and that it planned to publish a semiconductor strategy in autumn 2022. The strategy has already been nearly two years in the making. The industry has waited for the strategy and will base crucial decisions upon it. The Government should lose no more time and should publish its Semiconductor Strategy immediately.

We recommend that the Government’s Semiconductor Strategy consider scope for development of the UK semiconductor industry in the following fields:

• Intellectual property and design;
• Supporting the design chain for leading edge node chips;
• Matching UK manufacturing capability to UK design capability;
• Developing manufacturing processes for silicon semiconductors;
• Development of existing strengths in compound and advanced material semiconductors, to meet demand in emerging markets;
• Facilitating the construction of new fabs, including consideration of an open access fab in the South Wales cluster.

In addition, we recommend that the Government produces a risk and resilience strategy for the semiconductor industry alongside its Semiconductor Strategy, as a matter of urgency.

It is not clear to us that the support or attention currently offered by Government is at anything like the scale which is needed to secure our supply of semiconductors and to deliver the future prosperity of the semiconductor industry.

The Government must not overlook the semiconductor industry any longer. Whilst we recognise the difficult fiscal picture in the UK, we call on Ministers to set up a new sector deal as the vehicle to work with industry to agree UK priorities and the best use of any public funds or support. This could be via additional funding or guarantees made available via the Compound Semiconductor Applications Catapult, Innovate UK or the British Business Bank.

The UK is missing out on inward investment at a crucial time for the semiconductor industry, and we are competing with other countries. The Government should be more proactive in seeking to secure partnerships with US and EU counterparts, and engage with Taiwanese and other major companies to secure significant inward investment in the UK.

Related inquiry: The semiconductor industry in the UK