UK earmarks £1 billion for chip R&D

The UK government plans to support the semiconductor industry with new funds and a partnership with Japan.

Unveiled late last week, the National Semiconductor Strategy will see £1 billion spent over the next decade to stimulate research and development, improve access to infrastructure, and facilitate greater international cooperation. The first £200 million will be allocated in 2023-2025.

The strategy – which follows on from the £539 million in research grants and £214 million in subsidies the government has paid out to the chip industry over the last 10 years – has three key objectives: growing the UK semiconductor sector, mitigating the risk of supply chain disruption, and protecting national security.

“Our new strategy focuses our efforts on where our strengths lie, in areas like research and design, so we can build our competitive edge on the global stage,” said Prime Minister Rishi Sunak, in a statement on Friday.

“Britain is already a world leader when it comes to researching and designing semiconductor technology – our new strategy will double down on these core strengths to create more skilled jobs, grow our economy, boost our national security and cement the UK’s status as a global science and technology superpower,” added science, innovation and technology secretary Chloe Smith.

As for facilitating international cooperation, the government is off to a flyer. At last week’s G7 summit in Hiroshima, Japan, Sunak agreed a broad strategic partnership with the Japanese government that covers collaboration in semiconductors, as well as in science, innovation and technology, defence, and the environment.

However, while the UK’s semiconductor ambitions are certainly laudable, the budget is a little on the diminutive side, and underscores where the UK ranks these days, economically speaking.

For example, the EU has set a target of ploughing €11 billion of public funds – including €3.3 billion from its own budget – into the bloc’s semiconductor industry. The budget covers various initiatives, including manufacturing and R&D, among others.

In the US, the Biden administration has allocated a $52 billion budget to its CHIPS programme, $11 billion of which will support R&D initiatives.

Then there is China, which is working overtime to bolster its homegrown tech sector in an effort to win the tech trade war with the US. A Reuters report late last year claimed that China plans to spend $143 billion over five years to support chip production and research. Earlier this month, the South China Morning Post reported that Beijing subsidised 190 semiconductor companies to the tune of $1.75 billion in 2022 alone.

Chip makers themselves also spend many billions of dollars on R&D every year. In 2022, Intel’s R&D budget weighed in at $17.53 billion. Samsung, which admittedly has its fingers in a lot more pies than Intel, spent $18.17 billion on R&D. Intel rival AMD spent a more modest $5.01 billion, while MediaTek’s R&D totalled $3.81 billion.

Next to numbers like these, the UK’s £1 billion over 10 years looks like a drop in the ocean. The pressure is on to spend the money in as targeted a fashion as possible in order to maximise the bang for its buck.

In addition, the global semiconductor industry isn’t exactly in great shape at the moment. According to a research note from Gartner in April, inventories are higher and chip prices are lower, because economic headwinds have curbed spending on electronics in both the consumer and enterprise markets. Oversupply problems are not exactly solved by spending billions on new chip fabs.

While demand is strong from some verticals, like the automotive and defence industries, it is not enough to offset weakness in the smartphone, tablet and PC markets. As a result, Gartner expects global semiconductor revenue to decline by 11.2% this year to $532.2 billion.

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