Opinion: Diversification in semiconductor manufacturing is welcome but we must not abandon global markets

Opinion: Diversification in semiconductor manufacturing is welcome but we must not abandon global markets
Feature articles |
While the laws of supply and demand will eventually bring order back to the semiconductor market, it is crucial that we learn from the disruption to be better prepared for future challenges, says Simon Beresford-Wylie, CEO of Imagination Technologies
By Nick Flaherty

Share:

No one in the semiconductor supply chain has been left unscathed by the ongoing severe shortages. Inevitably, some Imagination customers have been impacted, from consumer electronics and car manufacturers to chipmakers themselves. But while the laws of supply and demand will eventually bring order back to the market, it is crucial that we learn from the disruption to be better prepared for future challenges.

There is no mystery behind the shortages themselves. With semiconductor production schedules typically set well ahead of time, a global surge in demand for chip-reliant consumer electronics devices – including phones, games consoles and computers – during lockdowns, and an unexpected rebound in car sales, have made it difficult for chipmakers to keep up.

The crisis will gradually resolve itself as investments by chip manufacturers in increased capacity come online, and demand stabilises as we adjust to a new post-pandemic normal. But while the private sector must lead the response, there are steps governments across the world could take to ensure critical supply chains are more resilient in future. 

Manufacturing is currently concentrated in a small number of locations, which while beneficial for economies of scale leaves supplies vulnerable to bottlenecks and localised disruption. The unprecedented cold snap in Texas and its impact on the power grid, which halted production at several chip-producing factories, is a case in point.

To reduce vulnerability to such events, policymakers should encourage greater geographical distribution of production as a means of promoting supply chain diversification. This is already beginning to happen. In Europe, the EU is preparing to launch an industrial alliance on microelectronics and is reportedly seeking to increase local manufacturing capacity, with France and Germany leading the charge. In the US, the Biden administration is expected to shortly order a review of critical supply chains, including semiconductors. 

Next: Semiconductor investment 


The UK, where Imagination is based, should consider doing the same as it embarks on its post-Brexit, post-covid economic future. It possesses many of the ingredients needed to successfully manufacture chips, from several world-leading companies to highly skilled engineers and a strong track record in advanced manufacturing. But an overarching vision is needed from government, in partnership with industry, to make this happen.

Greater investment in regional semiconductor manufacturing capacity is consistent with a a growing emphasis in both Europe and the US on technological autonomy or “sovereignty”. For a range of well-known economic and geopolitical reasons, governments are increasingly intent on securing a degree of domestic capability in technologies deemed “critical” or “strategic” due to their perceived role in ensuring national security, domestic prosperity and economic competitiveness.

Semiconductors, which have a role to play in practically every area of technology from artificial intelligence and quantum computing to driverless cars and wireless connectivity, easily pass the “critical” threshold. When it comes to receiving government support, they are competing in a crowded field which also includes 5G, cloud infrastructure, satellites, cybersecurity and more. But given their role as a fundamental enabler of other technologies, policymakers should see investment in semiconductor innovation and manufacturing capacity as complementary to their overall goals of achieving technology sovereignty. Every pound, dollar or euro of investment in semiconductors almost certainly generates more than that for wider economy.

But while diversifying the geographical distribution of semiconductor production is a necessary step towards greater supply chain resilience, the globalised model of production that has underpinned decades of innovation, competition and falling prices in the semiconductor industry must not be abandoned. A protectionist turn inwards, with individual countries attempting to make and hoard their own semiconductors would be costly, inefficient and threaten technological progress. It would also be far more likely to increase, rather than reduce, vulnerability to supply chain disruption as production became more localised.

Liberal market economies, including the UK, the EU and the US, should actively defend our highly successful global trading system and challenge damaging trade restrictions which undermine it. As a recent report by the Semiconductor Industry Association argues, the “steady opening of markets and levelling of the global playing field – spearheaded by the World Trade Organization (WTO) – has been critical to the success of the global semiconductor industry”. That success has generated wealth and economic opportunity all over the world, accounting for $1.8 trillion in total global trade in 2018.

Policymakers should take heed of this as they pursue their mission for technological sovereignty. Achieving the right balance between self-sufficiency and global markets may not be easy, but our prosperity depends on it.

Related articles 

Other articles on eeNews Europe 

Linked Articles
eeNews Europe
10s