CEO of AIoT chip company XMOS, Mark Lippett is a technology leader with 25 years’ experience in startup, scaleup and blue-chip companies.
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I wanted to know what proportion of the world’s economy relies upon semiconductors. So I did what we all do these days: I asked ChatGPT.
“Substantial,” apparently. Clearly, it still has some things to learn.
Nonetheless, the huge interest in generative AI and its potential to rewrite the way we do things is just the tip of the “semiconductor iceberg,” given the impact that they have on all of us, every day, everywhere.
No surprise, then, that governments are worried about their ability to secure supply, or at least better protect their country from malicious attacks. Many countries are changing the way their semiconductor supply chain operates by onshoring as much of the process as they possibly can, in a bid to insulate themselves from adverse global events.
This shift might sound liberating to the politician, but it’s a far-fetched idea. The semiconductor supply chain is inherently global, from the skills and economies of individual nations, to the interwoven fabric of the businesses involved, to the distribution of natural resources. (According to Jan-Peter Kleinhans of Stiftung Neue Verantwortung, a German think tank, elements representing 80% of the periodic table are required to build chips.)
The resources and finances required to achieve the onshore shift would be astronomical—eclipsing even the hundreds of billions frequently mentioned by China, South Korea, Japan and the United States. That’s to say nothing of the skill influx, legislative changes and time frame required to establish a complete revolution of the way the world does business.
What is more realistic, however, is for countries to specialize. Whether it’s through intellectual property, chips or greater capacities for production, some nations can be secure in the knowledge that their unique strength earns them “a seat at the table” among a cooperative group of nations.
Small Country, Big Impact: The Netherlands And ASML
Perhaps the best example is ASML, the photolithography manufacturer that dominates the Netherlands’ role in the global supply chain.
Despite its relatively small size, ASML is a vital player in the worldwide semiconductor ecosystem. As of February this year, the company’s market capitalization was $250 billion—equivalent to a quarter of the entire country’s GDP, and surpassing the investment to be implemented in South Korea to create “the world’s largest chip center.”
This is simply because no other country or company can do what ASML does. In 2022 it sold just 400 machines, to a tune of £18.9 billion—that’s an average sale price of just over £47 million. The company’s importance to the global semiconductor community has made it a fiscal jewel in the Dutch crown.
This makes ASML a compelling demonstration of how dominating a niche in the semiconductor market can bring huge financial success. The company is a reference point for comment on market forces, from China’s chip development to global onshoring, which also proves that niche success can command global influence.
How can ASML’s model for commercial and geopolitical influence be replicated?
Learning From The Best
While success of this scale is ambitious, there are principles that businesses can adhere to in pursuit of independent success on their own terms. There’s no intrinsic reason why we can’t ultimately have multiple, multibillion-dollar companies in the U.K., each of which commands disproportionate global mind-share.
First, of course, there is the need for funding. The nature of semiconductor innovation means that investment takes several years to come to fruition, and the businesses involved will need financial support over an extended period to maximize the return. The criticism of the magnitude and the scope of the U.K.’s semiconductor strategy is not without merit here—so U.K. companies need to continue to engage in progressive dialogue with government, legislators and investors to secure ongoing, significant capital.
Without that backing, the U.K. may also see something of a “brain drain.” Why would a semiconductor specialist choose the U.K. over a country offering them better wages, at a more established or better-funded company, in a more thriving ecosystem, on a more relevant or bleeding-edge project?
As such, measures should be taken to make a business as attractive to talented candidates as possible, which could mean anything from curated internship programs to talent-driven visas. Think tanks in the United States have specifically recommended the latter for chip development, and we’re starting to see calls for the same from U.K. businesses.
Dominating a niche requires capital, talent and patience, but let’s not forget we are not starting from nowhere. To paraphrase Tom Tugendhat, “If you want to have a domestic microchip capability, you can either start with a couple of 18-year-olds and a bucket of sand or you can start with what you’ve got.” U.K. PLC must ensure that the current rising tide of commitment to semiconductor businesses floats all boats—from brand-new university spin-outs to scale-ups. It is the successful commercial ventures that provide the fuel for a self-sustaining sector in the long term.
The U.K.’s differentiating technology can be delivered through any part of the semiconductor value chain—from intellectual property (like ARM, Imagination or Alphawave), to fabless chip suppliers (like XMOS), to manufacturers (like IQE and PragmatIC).
The Importance Of A Globalized Chip Industry
The semiconductor industry is vast and complex, relying upon a globalized approach to thrive. By promoting collaboration and cooperation, the industry can ensure its continued growth and stability.
A globally diverse supply chain helps to distribute risks, ensure technological advancements and maintain a healthy competitive landscape. Moreover, it reduces the overreliance on a single country or region, mitigating vulnerabilities and potential disruptions.
With this in mind, it’s essential to foster a globally diverse and highly specialized supply chain that comprises best-in-class technologies selected on merit, not geography, and that functions as a collective entity. When countries are not engaged in conflicts or trade disputes, they tend to prioritize wealth creation and economic success over geopolitical rivalries. That feels like a better legacy for us to leave future generations.
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