techUK, a trade association which jointly leads the Chips Coalition, explores the UK’s place in the global semiconductor market and considers the changes needed to accelerate its position.
Semiconductors, often referred to as ‘chips’, are embedded in practically every modern device. They are already indispensable across areas like defence technologies, medical equipment, vehicles, and consumer devices, while underpinning the next generation of emerging technologies including quantum, artificial intelligence (AI), photonics, renewable energy, and future telecoms. It is not controversial to say that semiconductors are one of the most valuable assets in the world today – with global sales of semiconductors projected to be $1tn in 2030, almost double of what it was worth in 2023.¹
Whether it is power electronics used in rudimentary devices like fridges, or the most cutting-edge chips powering AI, the growth and relevance of this technology is certain to grow. However, whilst the growth of the semiconductor sector is inevitable, the UK’s place in this story isn’t.
Strategically critical, uniquely vulnerable
Whilst the impact of semiconductors is monumental, the supply chain in which they are designed and produced is incredibly intricate and deeply susceptible to disruption. In 2020, semiconductor supply shortages are thought to have reduced global growth by a full percentage point, with the automotive industry alone estimated to have produced almost eight million fewer vehicles.² Alongside economic insecurity, supply chain disruption can also threaten critical national infrastructure, such as power and transport networks, making the semiconductor supply chain essential to national resilience.
The strategic significance, economic potential, and inherent vulnerability of semiconductors have driven governments worldwide, such as the US, EU and China, to make significant investments in their domestic industries. The European Chips Act, for example, has earmarked €43bn to strengthen semiconductor infrastructure, support start-ups, develop the workforce, and drive innovation across the continent.
In November 2024, the European Commission’s Executive Vice-President for Tech Sovereignty, Security and Democracy reaffirmed this commitment by naming semiconductors as a foundational technology for Europe’s future, alongside AI, cloud computing, quantum technologies, and space. These national strategies typically involve large-scale public investment and generous subsidies, much of this being notably more ambitious and competitive than the UK’s current efforts. By raw quantity alone, the £1bn over ten years committed in the UK National Semiconductor Strategy is dwarfed by the likes of South Korea, who in January 2024 announced $470bn to develop the world’s biggest semiconductor cluster.³
To remain relevant and competitive, the UK is aiming to strategically position its existing subsectors, leveraging globally recognised strengths in the semiconductor value chain to strengthen domestic capacity and respond effectively to these international strategies.
UK semiconductors: A strong cog in a global machine
Strategically, the UK excels in the earlier stages of the semiconductor value chain, particularly in research and development, design, and intellectual property. It also holds a leading position in compound semiconductors, which use multiple elements to deliver performance advantages for cutting-edge applications such as 5G, photonics, and quantum technologies. These capabilities align closely with the UK’s broader ambitions to lead in emerging technologies like AI, quantum, and photonics.
The UK punches well above its weight in these global markets. Cambridge-based Arm, whose chip architecture underpins the vast majority of smartphones worldwide, is a clear example of the UK’s global impact in semiconductors. In 2023, the South Wales semiconductor cluster alone exported products valued at over £514m, with 90% of output heading to international markets. The UK also remains a magnet for global talent, with 23% of new hires in UK semiconductor firms coming from overseas – a testament to the sector’s international reach and reputation.⁴
Already, the sector contributes significantly to the UK: in 2021, it generated £12bn in turnover and accounted for 12% of the UK’s total R&D expenditure. With over 200 specialist semiconductor companies across the country, half of them located outside London and the Southeast, the industry is both geographically diverse and economically high value. Productivity is strong, with estimated revenue per employee reaching £635,000. Confidence in the sector is also high, with 90% of firms anticipating moderate to rapid growth in the coming years.
Although the UK does not possess large-scale chip fabrication capacity on par with global heavyweights such as Taiwan or South Korea, it is home to about 23 commercially successful fabs producing specialised products for global markets. Notably, the recent establishment of the UK’s first 300mm wafer fabrication facility by Pragmatic Semiconductor in the Northeast marks a significant milestone in expanding domestic production capabilities.
A national vision
The UK’s National Semiconductor Strategy was warmly welcomed by industry as a bold roadmap to support growth across critical areas like skills, research, and infrastructure. Positive steps have followed. Notably, the Digital and Technology Sector Plan, as part of the Industrial Strategy, announced the creation of a new UK Semiconductor Centre, backed by up to £19m.⁵ The Centre will unite industry, academia, and government to lead on innovation, provide business support, and develop long-term R&D and infrastructure roadmaps to guide future investment. A central hub for the UK ecosystem has been a long-time ask from industry, including not only from techUK, but also by the Chips Coalition in an open letter to the Secretary of State last year, and the 2023 Institute for Manufacturing’s infrastructure feasibility study.
techUK believes this Centre has the potential to play a pivotal role in supporting the sector in several ways. Firstly, the UK Semiconductor Centre should act as a central hub, uniting the UK’s dynamic regional ecosystems, co-ordinating access to vital national infrastructure, and assisting scale-ups through targeted initiatives that help them navigate and connect across the landscape.⁵
©shutterstock/Gorodenkoff
In addition, the Centre should strengthen links between semiconductors and other emerging technologies such as AI, quantum, and photonics, playing a prominent role on the international stage, positioning the UK as a credible and collaborative global partner in semiconductor innovation. This Centre could prove a fantastic tool in addressing the sector’s biggest bottlenecks.
The UK semiconductor industry didn’t emerge by catching lightning in a bottle, it earned its place through smart, collaborative efforts across policy, academia, and industry. But past leadership cannot be taken for granted. Just as Japan once dominated consumer electronics before losing ground to American, Korean, and Chinese players, the UK’s current position as a strong partner in niche subsectors must be doubled down upon, or face being lost to other nations.
While the UK remains Europe’s largest tech hub, future leadership depends on strong foundations, and semiconductors are essential to that. The National Strategy marked real progress, and early actions show promise. But global competitiveness won’t be secured through light-touch efforts. Now is the time to turn strategy into sustained action. The rest of the world is investing tens of billions – sometimes hundreds of billions – to secure a stake in the future of this technology, here’s what we need to do to capture ours…
Turning strategy into action
The UK semiconductor ecosystem remains cautiously optimistic, with the sector benefitting from strong consensus on the challenges and interventions needed for growth. techUK and its role in the Chips Coalition has helped us identify a clear set of goals: turning strengths into leadership, unlocking investment, and securing our place in global supply chains.
Turn strengths into global leadership
The UK is not starting from scratch. It has globally competitive strengths in chip design and IP, centred around Cambridge, (with other key hubs in Manchester, Sheffield and Bristol). South Wales also hosts a strong cluster in specialised, non-leading-edge manufacturing, such as compound semiconductors. These capabilities have been built through smart, targeted policy and infrastructure that support innovation and scale.
Government must now build on this foundation with an ambitious, co-ordinated plan tailored to each subsector. The skills required for a manufacturing company will vary greatly to those in chip design – policy intervention must reflect that. Swift delivery is essential, making full use of the UK’s deep pool of expertise and potential. To compete globally, the UK should double down on its strengths in design and IP, R&D, and compound semiconductors, while ensuring the financial support needed for high-growth firms to scale at pace.
Enable greater investment into those strengths
To actually build on those strengths, government must ensure semiconductor businesses have reliable access to both public funding and private capital. Despite having the third largest tech sector globally, after the US and China, many UK semiconductor start-ups cite limited access to large-scale private investment as a key barrier. At techUK’s 2024 roundtable on semiconductor scale-ups, one founder noted that just 5% of their funding came from UK investment.
The UK needs an environment that supports investment, collaboration, and talent across its leading subsectors. That will not be possible if companies continue to face high costs and low levels of domestic investment, which risks turning us into an ‘incubator economy’ that starts companies here, but scales them overseas. Government must ensure a wide range of funding options are available across the full growth journey of semiconductor businesses, from early stage to scale-up.
Building strategic global partnerships
The global semiconductor supply chain is deeply interconnected and interdependent, with certain countries and companies holding significant market power. Taiwan’s TSMC, for instance, produces around 90% of the world’s most advanced chips. The UK also plays a crucial role – over 99% of smartphones globally use chips designed by Arm, based in Cambridge.
Disruptions to these global supply chains, whether accidental or deliberate, will continue to affect the UK’s semiconductor capabilities. Building resilience is essential. While the UK depends on global partners, the world also depends on UK strengths. The government should recognise and leverage this mutual reliance by promoting UK capabilities on the international stage and creating new opportunities for collaboration in research, investment, and innovation.
Focusing on delivery
Ultimately, semiconductors are not just another part of the technology landscape, they are the foundation of it. The UK needs to retain a strong domestic semiconductor supply chain for national resilience and future growth, and we’ve got all the tools to do so. The National Semiconductor Strategy has made some positive strides, with the establishing of a UK Semiconductor Centre holding a lot of potential to co-ordinate efficient support for the sector. Now, we must focus on delivery. That’s the task ahead, and groups like techUK and the Chips Coalition are pushing hard to make this a reality.
References
- https://www.axa-im.com/investment-institute/investment-themes/technology/advances-ai-and-tighter-labour-markets-sees-robotics-and-automation-sector-soar
- https://www.csis.org/analysis/mapping-semiconductor-supply-chain-critical-role-indo-pacific-region
- https://www.dw.com/en/south-korea-invests-big-in-becoming-a-global-chip-leader/a-68073870
- https://csconnected.com/media/trijjr3n/csconnected-sipf-weru-annual-report-2023.pdf
- https://www.techuk.org/resource/uk-semiconductor-centre-announced-as-part-of-strong-support-for-semiconductors-in-the-industrial-strategy.html
Please note, this article will also appear in the 23rd edition of our quarterly publication.