In our ever-growing reliance on advanced technologies like AI, it is important not to overlook the significance of the semiconductor chips that power these systems. These tiny pieces of silicon, derived from quartzite, are an integral part of our complex software ecosystems.
These chips are all around us, from the cars we drive to the devices we use in our everyday lives. In fact, there are around 145 chips in existence for every person on Earth. Originally developed to give the US military an advantage during the Cold War, this technology has found its full potential in consumer goods and communication tools.
However, there is a challenge in that the majority of the world’s most advanced chips are made by one company, TSMC, in Taiwan. This concentration of manufacturing raises concerns about supply chain disruptions and security vulnerabilities. As a member of the Nato Parliamentary Assembly, we regularly discuss these risks.
Recently, there has been a £140m acquisition of the largest microchip factory in the UK, Newport Wafer Fab, by American firm Vishay. This investment is seen as positive, as it helps secure jobs and growth in South Wales. However, to grow our domestic capability in this sector, we need stability and strategic investment.
Despite the dominance of TSMC, the West still has strategic advantages. Our research and design teams are developing some of the most advanced semiconductors in the world. China, for example, relies on imported chips from the US for many of its cutting-edge AI applications. It is not widely known that a key component in smartphone facial recognition systems is actually made in South Wales.
The UK is in a strong position to diversify the semiconductor supply chain and improve the economic security of the West. We have various industrial centers of excellence and the world’s first compound semiconductor hub in Newport. Building on this strength requires innovative R&D and a skilled workforce, which can be challenging to recruit.
We anticipate significant growth in the semiconductor industry as we transition to a net-zero economy. Advanced semiconductors will be crucial in powering electric vehicles and facilitating efficient power conversion from renewable sources. To develop our industry, we need to collaborate with our allies, such as the Five Eyes partnership, to build critical infrastructure that protects our national security and ensures economic power.
The UK has already prioritized investment in R&D through its National Semiconductor Strategy and is home to leading chip designers. However, it is important to also focus on manufacturing the chips themselves, rather than solely on R&D and design. This will prevent skilled manufacturing jobs from being outsourced and support the security of our supply chains.
In the post-Brexit landscape, we have the opportunity to adopt a more flexible approach to sectoral incentives, promoting economic growth in areas that would benefit from leveling up. The semiconductor industry is the fourth largest in the world, and its revenues are projected to reach $1tn by the end of the decade. For each semiconductor job, about six additional jobs are created in the supply chains and wider economy.
Other countries, such as India, Japan, Spain, and Germany, have already made significant investments in the semiconductor industry. By working closely with our allies, we can harness the potential to create well-paid, skilled jobs and invest in our national security. The UK has a strong foundation, and it is our responsibility to build on it further.
Alun Cairns, MP for Vale of Glamorgan and former Secretary of State for Wales, chairs the Semiconductor All-Party Parliamentary Group.
