In 1952 Geoffrey Dummer, a British engineer working for the Ministry of Defence, was challenged with finding ways to improve the radar systems his team had pioneered during the Second World War. One of Dummer’s proposals was to lay an electrical circuit on a layer of silicon to increase the radars’ reliability. It quickly became clear to him, however, that the effects of the circuit would reach far beyond the navigation systems he was attempting to finesse.
Dummer presented the concept to MoD officials, business leaders and then to the US Electronic Components Symposium in Washington DC. “I shook the industry to the bone when I lectured on the chip,” he said in an interview two decades later. “I was trying to make them realise how important its invention would be for the future of microelectronics and the national economy.”
It wasn’t the British government, nor its defence research institutes, that would go on to develop Dummer’s proposals. It was an American company, Texas Instruments, that seven years later would patent the world’s “first” integrated circuit, the foundational technology upon which the electronics industry and much of the modern world has been built. Semiconductor chips are now used to manage the flow of electricity in phones, computers, cars and household goods.
The origin story of the semiconductor industry should have served as a cautionary tale in Britain. Over the subsequent decades, British scientists and engineers made some of the most significant breakthroughs in the sector. Yet, as with the integrated circuit, it has largely been overseas businesses that have commercialised that research. Even those companies that have successfully monetised British semiconductor advances, such as Arm and Imagination Technologies, have been acquired by foreign owners in recent years.
Two stories have drawn this issue into sharp focus since the start of the pandemic. The first is the shortage of computer chips, which has exposed the fragility of global supply chains. As office workers returned home during lockdowns, there was a surge in demand for laptops, tablets and thus the semiconductors that underpin them. Disruption to freight routes and ports caused by the pandemic had, however, constrained supply of these components, pushing up prices and causing long waiting times for goods, including fridges and dishwashers as well as cars, computers and smartphones.
The second story, which has only begun to gain significant political traction in recent months, is the dispute over the sale of Newport Wafer Fab. Nexperia, an ostensibly Dutch semiconductor firm that is in fact a subsidiary of the Chinese company Wingtech, acquired Newport last summer. The Chinese government has a stake of nearly 30 per cent in Wingtech, according to the analysts Datenna. The timing couldn’t have been worse. As the US and EU were drafting plans to invest tens of billions of pounds in developing domestic semiconductor production facilities, following similar moves by China, it emerged that the UK’s largest remaining chip fabrication plant had been sold to a business part-owned by Beijing during a severe semiconductor shortage.
As Whitehall officials retrospectively review the acquisition of Newport under national security legislation, the Department for Digital, Culture, Media and Sport is preparing to launch a semiconductor strategy. Industry experts, however, are sceptical about how seriously the government will take the challenge.
The sale of Newport is just the latest in a long line of foreign investments in British chip production plants. In the Eighties Newport’s site was occupied by Inmos, which at its peak held 60 per cent of the global market for static random-access memory chips, which help to power central processing units. The rise of neoliberal economic policy under Margaret Thatcher’s government meant that the company was left to the mercy of the market. The government’s National Enterprise Board was forced to sell its 76 per cent stake in Inmos in 1984; five years later it was acquired by a French-Italian semiconductor manufacturer and the brand ultimately disappeared.
In the Nineties, as Taiwan became the global centre of semiconductor manufacturing thanks to government support, Downing Street doubled down on encouraging foreign purchases. It encouraged regional development agencies to create packages that would attract foreign investors to the UK’s semiconductor sector. Companies in the so-called Silicon Glen in Scotland secured investment from the Japanese companies Motorola and NEC, while Fujitsu invested in sites in the north-east of England. A fabrication plant in south Wales was built and earmarked for LG Semicon, a South Korean company, but it remained empty because LG pulled out during the Asian financial crisis. Such incidents became common. “The history of British semiconductor manufacturing,” says a senior industry source, “is littered with inward investment that has gone wrong.”
Today, Newport Wafer Fab is one of just a handful of foundries left in the UK. Britain is still home to leading chip design companies, such as Arm and Imagination Technologies, but they have also been purchased by Japanese and Chinese businesses respectively in the last few years. Even those who are pushing for Newport’s acquisition to be reversed accept that the UK’s semiconductor sector is unlikely ever to compete with Taiwan, where the Taiwanese Semiconductor Manufacturing Company builds the cutting-edge chips found in iPhones.
Newport’s acquisition is significant, however, because of the role the site played in the South Wales Semiconductor Cluster. The UK government describes the network of businesses operating in the area as the world’s “first and only dedicated compound semiconductor cluster”. Compound semiconductors, which are used to charge electric vehicles, will play a critical role in the transition to net-zero greenhouse gas emissions, as well as quantum computing. They are considered to be so significant that sites which can produce compound chips, such as Newport Wafer Fab, are explicitly listed as a national security concern in the legislation empowering ministers to intervene in the foundry’s sale.
After this piece was published, a spokesperson for Nexperia wrote to the New Statesman stating that “no compound semiconductor capabilities existed previously and do not exist currently at Newport”. Nexperia said that before the previous owners acquired the site, Infineon, which ran Newport until 2017, had removed its compound semiconductor capabilities and that it had produced no compound chips since. But Nexperia’s UK country manager, Toni Versluijs, acknowledged in August 2021 that Newport had existing contracts with academic and commercial partners, covering a range of materials, including gallium nitride on silicon for radio frequency, and that Nexperia would “honour the contracts”.
This is significant because the National Security and Investment Act explicitly covers sites which produce “compound semiconductors for radio frequency and microwave application including gallium nitride”. Newport may not have been capable of producing semiconductors using compound materials that do not sit on a silicon layer. But it remains to be seen if the government will determine that this is a sufficient distinction as to remove Newport from the scope of the legislation, given that it is the gallium nitride itself, rather than the silicon, which enables the chips to function.
Nexperia has said it is committed to the site and the aspirations of the cluster. However, Malcolm Penn, a former Newport board director, wrote to MPs last month casting doubt on these claims. In a letter seen by the New Statesman, Penn argued that the company’s lack of cooperation with other members of the cluster had caused “major issues for both the associated academic community and the CS Cluster’s expansion plans”.
The cluster’s champions argue that while the UK is still seen as a leader in producing intellectual property for semiconductors, businesses such as Arm create less value for the economy than manufacturers, because they only take a tiny cut of the cost of each chip they help to produce.
Through the review of Newport’s ownership, the government now has an opportunity to stimulate the growth of the sector again. Whether it will, however, is difficult to predict. Liz Truss, the Foreign Secretary and leading candidate to be the next prime minister, claims to be hawkish on China, but her brand of economics is largely a continuation of the free-market zealousness that led to the sell-off and dismantling of the industry in the 1980s.
Seventy years after Geoffrey Dummer struggled to win over government officials with his proposals, it appears that those working in the sector are facing similar challenges once again. “The fundamental problem,” says the industry source, “is there’s a complete ignorance and lack of understanding of what the semiconductor industry does and how it contributes to the national economy.”
Update: This article has been updated to include further details of Newport Wafer Fab’s production capabilities.
[See also: The future world order will be decided by the war over semiconductors]