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Constraints on UK semiconductors: Difficulty for small chip companies
2023/4/24 4:41:10

The UK is an important contributor to the semiconductor industry, but currently there are only a handful of chip companies that can be named.

 

Arm is a company that started out as a small firm called Acorn Computers in the 1980s, when a car might contain only three chips. Today, politicians lament that when Arm re-lists in the US with a valuation of $40bn, the UK will lose its only significant success in the semiconductor field. They worry that the UK will forever be sandwiched between American device manufacturers and Asian manufacturing giants, relying on a global supply chain for critical strategic components that is vulnerable to geopolitical and geoeconomic shocks.

 

Consultancy McKinsey predicts that chip sales will reach $1tn by 2030, driven by three main sectors: automotive, computing and data storage, and wireless.

 

So, are there any small chip design firms lurking in the UK market, like early Acorn, unnoticed by others? According to Bob Liao, an analyst at broker Zeus Capital, pessimistically, not many. The UK will always struggle against overseas companies backed by generous governments and financially powerful financiers.

 

Graham Curren, CEO of Sondrel, a company that specializes in designing application-specific integrated circuits (Asics), also believes that tech start-ups are struggling in the UK. The carefully planned bailout of Silicon Valley Bank's UK branch will only highlight the financing gap for UK high-tech businesses.

 

Technology entrepreneurs complain that the problem is that UK investors are too focused on returns, skeptical of companies that need cash to compete in fiercely competitive industries and quick to sell shares.

 

Several vivid examples illustrate all of this: Dialog Semiconductor was sold to a Japanese rival in 2021. In 2016, Arm was acquired by SoftBank of Japan for $32bn, about 24 times its price-to-earnings ratio. In 2014, Wolfson Microelectronics was acquired by a US rival for about £300m, and the same year, Qualcomm acquired Cambridge Silicon Radio for $2.4bn. Then there is Imagination Technologies, once the largest listed technology company in the UK, which collapsed after Apple stopped buying its intellectual property. In 2017, it was sold to venture capitalists for about £550m.

 

Chip companies hoping to become the next Arm are also considering leaving the UK.

 

Toronto chip manufacturer Alphawave IP went public in London in 2021 at 410p per share, but its share price is now around 120p per share.

 

Compound semiconductor maker IQE's share price has also fallen 80% in the past five years. IQE CEO Americo Lemos told the Times earlier this year that while the company wanted to stay in the UK, it had a responsibility to its shareholders to go where the money was - potentially the EU or the US.

 

A microchip company in the Welsh Newport semiconductor "cluster" also warned that it may have to relocate to the US or the EU if the government does not take action in the next six months.

 

A government spokesperson told CNBC: "We are committed to supporting the UK's vital semiconductor industry. Our strategy will further develop the industry and ensure we have a resilient supply chain. The strategy will be announced as soon as possible."

 

Small chip companies are still striving, despite the challenges they face. In the past year, two veteran semiconductor companies from the UK, Sondrel and EnSilica, have made their debut in the primary market. Both are ASIC chip design companies, with Sondrel partnering with clients in future fields such as autonomous driving and artificial intelligence, while EnSilica designs chips that combine digital and analog signals for use in cars, broadband satellite communications, insulin pumps, and heart monitors. Brokerage firm Cenkos estimates that Sondrel will achieve a pre-tax profit of £2.4 million and revenue of around £40 million in 2024, up from £17.5 million in 2022. By 2025, sales could double again. These small companies see opportunities because European and American clients control the supply chain, making local production more viable.

 

Forefront RF Ltd, a wafer-less chip company based in Cambridge, UK, has raised £6.7 million to continue its work in RF adaptive passive cancellation. The company was spun out of the University of Bristol in 2020 by Leo Loughlin (CTO) and Julian Hildersley. Ron Wilting was appointed as CEO in May 2022. They plan to use adaptive switching with software to replace BAW and SAW filters and switch groups in 3G to 6G phones using their adaptive passive cancellation technology. This method of maintaining the accuracy of passive RF cancellation circuits allows mobile terminals to hear the weakest signals and still transmit at full power without flooding their own receivers. It achieves this by injecting the inverted version of the transmission signal in a manner similar to noise-canceling headphones.

 

The UK semiconductor industry urgently needs financial support from the government. Insiders warn that if the UK does not act soon, its microchip companies may flow to the United States and other countries. UK Prime Minister Rishi Sunak's government has not yet announced a strategy outlining the UK's efforts to support the chip industry, and semiconductor bosses in the country are becoming increasingly frustrated.

 

Pragmatic Semiconductor is a UK-based start-up that produces non-silicon chips. It warns that if the government does not release an industry plan soon, it may be forced to relocate overseas. Scott White, CEO of Pragmatic Semiconductor, said, "For companies like ours, continuing to operate and manufacture here must make economic sense, and if there are greater potential economic benefits and government support programs overseas, relocation is the only sensible business decision." It is important to manage the relationship with Nokia effectively.

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