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DCMS to consider establishing national institution for UK semiconductor industry

The feasibility study by the DCMS will support the department's wider semiconductor strategy

The Department for Digital, Culture, Media and Sport (DCMS) has launched a research project aimed at finding new ways to support the UK's semiconductor industry and could establish a national microchip institution to underpin its growth.

It will explore how to improve the development of the UK’s manufacturing infrastructure, bolster supply chain resilience, and provide “better access to prototyping and manufacturing facilities” for businesses. 

The DCMS also said it will consider how to support startups specialising in chip design and foster closer ties between industry, customers and government to address “shared challenges”, according to a tender notice for the feasibility study.

The results of the research are expected to inform how the government will deliver on ambitions set out in its upcoming semiconductor strategy - which is scheduled to be published in 2023. 

Aimed at unlocking the “full potential” of British microchip businesses, it is hoped the strategy will support job creation across the UK industry and ensure a reliable supply of semiconductors. 

The onset of the coronavirus pandemic prompted a period of significant disruption for the global semiconductor industry as production dipped. This disruption raised concerns that the country had grown reliant on a select number of major chip manufacturers based outside of the UK. 

A recent report from the Department for Business, Energy and Industrial Strategy (BEIS) warned that a lack of investment in homegrown semiconductor fabrication plants, known as ‘fabs’, could inhibit the growth of the industry.

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“It is not clear to us that the support currently offered by government is at anything like the scale which is needed to make a real difference,” the report warned. 

Over the last decade, the UK semiconductor industry has expanded significantly, with global revenue surging by 95% between 2012 and 2021. 

During this period, the DCMS noted that the UK has “established a number of major strengths” across chip design, research and compound semiconductors.

Digital Secretary Michelle Donelan said the research will aim to build on this success and ensure the UK maintains its position as a global market leader. 

She said: “We rely on semiconductors - they are in everything from our smartphones, kitchen appliances, and cars all the way through to the supercomputers that support our weather reporting, energy sector and countless other areas of our economy.

“In the UK we are leading the world in areas including design and research. We want to build on these successes and keep our semiconductor sector on the cutting edge.

“This study will help us meet our ambition and could lead to a new national institution and greater research facilities.”

National security concerns

The UK’s reliance on non-domestic suppliers has also raised national security concerns that have influenced major acquisitions.

In November, the government informed Nexperia, which owns the UK’s largest fab, that it must sell to “mitigate the risk to national security”. 

Nexperia, which is a subsidiary of Shanghai-listed company WingTech, acquired the Newport Wafer Fab production facility in July 2021. The acquisition was met with immediate calls for the government to intervene on national security grounds. 

The Commons Foreign Affairs Committee warned that the sale to a Chinese state-backed organisation could “undermine” the UK’s ability to produce compound semiconductors.

Similarly, in February this year, SoftBank abandoned its planned sale of Cambridge-based chipmaker Arm to Nvidia. 

When first announced in September 2020, the £29.6bn deal was the largest in the history of the semiconductor industry. The proposed sale faced significant regulatory hurdles in the UK, United States, and European Union. 

At the time, the DCMS called for an inquiry into the merger on national security grounds. 

Conducted by the Competition and Markets Authority (CMA), the inquiry subsequently ruled that the takeover could lead to a “substantial lessening of competition”. 

EU and US-based regulators also argued that the merger could drive chip prices up, reduce competition, and stifle innovation in the industry.

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