In recent decades, the UK’s semiconductor manufacturing industry has been in a state of steady decline. In spite of a strong research and development environment held up by world-class research institutions and universities, semiconductor startups struggle with commercialising and scaling. A lack of “deep-pocketed investment”, as phrased by TechWorks, and manufacturing infrastructure has resulted in the UK’s dwindling position in a global market, resulting in a dependency on overseas production.
The question of how the UK got to this point – having previously enjoyed a domestic manufacturing industry – requires first dipping into the past, in order to understand what needs to be done to strengthen its future prospects.
A brief history
The UK once had a thriving semiconductor industry that saw companies like Ferranti, Marconi Company, and Barr & Stroud set up plants in Edinburgh, creating an area that came to be known as the ‘Silicon Glen’: a high-tech strip of land between Dundee, Inverclyde, and Edinburgh.
In the 1960s, the UK government poured money into Marconi-Elliott Microelectronics (a joint venture between Marconi and Elliott Automation), Plessey Semiconductors, and Ferranti. Government money for chip research sat at $8 million in 1968, which was a third as much as the US government was spending.
The reasons for the UK’s semiconductor manufacturing decline are multifold, but can be broadly understood in the following points:
- Lacking investment
- Fierce global competition
- Acquisitions from international companies
- No long-term strategy
In 1988 a key moment that impacted its domestic industry happened when GEC, Plessey, and Ferranti were folded into one company, GEC-Plessey, which was taken over by a consortium formed by GEC and Siemens in 1989.
Furthermore, in 1971, GEC shut down the factories of Marconi-Elliott and Elliott Automation, where standard logic chips were being manufactured. As a consequence, the UK stopped making standard, volume commodity chips.
The semiconductor manufacturing industry today
Today, manufacturing dominance is predominantly occupied by Taiwan, South Korea, and China, which made up approximately 37% market share in 2020, according to Statista.
British semiconductor companies being snapped up by larger international organisations observed in the 1970s and 1980s would continue for many decades to come. The most famous example was perhaps Arm, a Cambridge-based business that was spun out of Acorn in 1990. It was later acquired by SoftBank Group and listed on Nasdaq, and not the London Stock Exchange, despite lobbying from UK ministers.
Furthermore, a brief history of UK semiconductor startups shows that the majority of these startups have been acquired by larger US competitors. Those that started life in the UK, such as CSR, CamSemi, and Alphamosaic have all been acquired by Qualcomm (2015), Power Integrations (2015), and Broadcom (2004), respectively.
The UK’s R&D expertise among universities and research institutions means it is strong in coming up with ideas but typically fails to commercialise it. The startups that manage to do so, are sometimes bought further down the line – resulting in a situation where funding and investment poured into startups create products that the UK public does not get to enjoy.
A closer examination of the startup ecosystem in the UK raises a few, key reasons as to why startups struggle past the early stage:
- VC funds in the UK are limited
- There is a lack of technical understanding among private investors
- An appetite for short-term investment doesn’t translate to semiconductor companies, where returns are longer-term
For Ronald Wilting, CEO of Forefront RF – a fabless semiconductor company developing tuneable duplexer technology that hopes to reduce the number of components present in a smartphone – attracting funding was partly a question of creating an understandable story for non-technical investors.
That story focused on how smartphones could be designed to be used globally, and manufacturers would no longer have to make region-specific models.
In November 2024, the startup secured $16 million, but Wilting acknowledged that he was asked questions by other startups on how they managed to do it, and funding remains one of the key challenges for them.
“We will be reliant on funding from outside the UK and potentially outside of the EU,” he said.
A baseline of UK semiconductor activity
In response to the national chip shortage of 2020-2023, the UK government published its National Semiconductor Strategy in May 2023 where it acknowledged that its strategy could not replicate that of other countries and would have to be tailored towards what its strengths are, notably IP and chip design. At the time of publication, it committed up to £200 million investment and up to £1 billion in the next decade.
A report commissioned by the DSIT in 2023 sought to create a baseline of semiconductor-related economic activity in the UK, and to evaluate how feasible the objectives set out in the Strategy are. Surveying 210 semiconductor companies, it discovered:
- Dedicated companies employ 15,000 people
- Revenue per employee is from £225,000 to £750,000
- UK semiconductor revenues could be between £13 billion and £17 billion by 2030
- Three quarters of 17 new companies (2020-2023) are involved in R&D, design, and IP activity
In highlighting the UK as a location for research and design-related semiconductor activity, it aligned with the recommendation that, to rectify the state of the industry, the UK should not spend millions of pounds building advanced, large-scale fabs, but to instead lean into what it does best: chip design.
67% of semiconductor companies are involved in R&D, design, and IP related activities, and only 28% are involved in semiconductor manufacturing activity, which the report stated, “emphasised the UK’s significance as a location for research and design related semiconductor activity”. The UK has over 110 dedicated design houses.
How to grow the UK’s semiconductor industry
In Semi35, TechWorks put forward its five-point strategy to grow the UK’s semiconductor industry which clearly laid out key points for the government to take into consideration:
- Grow globally successful chip companies
- Provide scaleup support for UK manufacturers
- Incentivise domestic demand
- Create a UK pilot line and innovation facility
- Establish a design competence centre
Wilting added that establishing dedicated prototyping and production lines would be massively helpful, on top of fostering homegrown talent.
“When I look at finding staff, especially in the analogue and RF domains, I need to recruit them globally,” he said. “There’s a huge university in Cambridge, but they only have one trimester of analogue circuit design. When you go to Delft University, it’s a four-year curriculum.”
Gaps in the engineering workforce, then, need to be filled by encouraging more students into STEM subjects, and creating dedicated design courses. Demand for software skills to programme and integrate chips is growing due to a trend towards in-house design of chips. 90% of respondents of the DSIT survey stated there was a moderate or acute shortage of engineers. This represents an opportunity for the next generation of engineers to specialise in chip design and have guaranteed employment when graduating from university.
The establishment of a proposed UK semiconductor centre, with £19 million set aside by the government, is encouraging in that it commits to fostering more growth. The government has said of the centre that it is a long-term commitment with a 10-year roadmap for industrial growth. It is expected to fund operations across four to five years, with £3.5 million per year to fund a staff of around 20.
The UK’s expertise in compound semiconductors is promising, as demand for compound semiconductors is forecast to grow faster than the semiconductor industry, at 10-12% CAGR over the next decade. In the Semi35 strategy publication, TechWorks wrote that if policy was done right, the UK was positioned to take advantage of this growth. “We do not currently have the right policy mix to achieve our full potential,” the report said.
Charles Sturman, CEO of Techworks, told me: “If you get a fundamental platform technology, the chip company working, then you build the rest of the stack up on top of that, and as a country, if we have one or two of those companies then we will have the rest of the supply chain coalescing around it, and so you’ll be building up a thriving economy.”
Conclusion
The UK is certainly no longer at its manufacturing heyday enjoyed in the mid-20th century. Strategies to strengthen its global position cannot promote building large-scale manufacturing fabs owing to the cost involved, but instead to lean into its chip design strengths, as well as its strong base in R&D.
Provided government policy remains consistent in acknowledging the need for more engineers and the challenges startups face in scaling up, embraces the emergence of new technologies where the UK can become a leader, and, fundamentally, invests enough money, the semiconductor manufacturing industry may not completely fade away. There is hope yet.
This article originally appeared in the Nov/Dec issue of Procurement Pro.
