Diversification, not protectionism, can shore up battered semiconductor supply-chains

By Simon Beresford-Wylie, CEO, Imagination Technologies 

Recent, seemingly unconnected events – from factory fires in Japan and an unprecedented cold snap in Texas to the blocking of the Suez Canal – have powerfully demonstrated the global nature of semiconductor supply chains and their vulnerability to freak events. 

This is of course taking place against the backdrop of the biggest freak event of all, the horrific covid-19 pandemic, which has led to unforeseen shifts in demand for technology as consumers and workers spend more time in the digital domain. 

Combined, these events have stretched semiconductor supply chains to their breaking point and illustrated the sector’s critical position in the 21^st century economy. What are the wider lessons we should be drawing from this, if any? 

Inevitably, many of Imagination’s customers and partners have been impacted by the shortages, from consumer electronics and car manufacturers to chipmakers themselves. But broadly speaking, there is an understanding across the industry that the shortages will resolve themselves as manufacturers scale up production and demand adapts to the new post-pandemic normal – in other words as market forces work their magic. 

Nonetheless, the crisis has clearly demonstrated the need to be better prepared for future supply shocks. While a path out of the current pandemic is clearly in sight, we cannot rule out other unexpected events causing similar disruption to semiconductor supplies in future, from earthquakes and the effects of climate change to geopolitical tension and new epidemics.

Beyond greater investment and risk planning by private companies, there is a clear role for governments across the world in making supply chains of semiconductors and other critical goods more resilient. Their efforts should focus on diversification, in order to improve the status quo whereby chip production is concentrated in a small number of locations – making supplies more vulnerable to bottlenecks and local disruption. 

To promote supply chain diversification, governments should provide incentives for increased local chip production while fully remaining committed to global supply chains. In other words, increased manufacturing at home should be seen as a means of supplementing, not displacing, imports from abroad. 

This is already beginning to happen. In Europe, the EU has set itself a target of producing 20% of the world’s semiconductors – as opposed to its current 10% market share – and is finalising plans to launch a government-industry alliance to achieve this. In the US, the Biden administration has ordered a full review of critical supply chains, including semiconductors, and is seeking to boost domestic chip manufacturing. 

The UK, where Imagination is based, should consider doing the same as it sketches out its post-Brexit, post-pandemic future. It possesses many of the ingredients needed to successfully manufacture chips, from cutting-edge semiconductor companies and a highly-developed technology industry to well-established strengths in advanced manufacturing. But an overarching vision from government is needed if the pieces are to fall into place. 

As the ongoing “vaccine wars” illustrate, investment in national or regional manufacturing capacity is a growing priority for governments across the world. This is particularly true with regards to technology, where for a range of reasons – including national security and economic competitiveness – governments are increasingly set on strengthening domestic capabilities in technologies deemed “critical”, including semiconductors. 

But we must avoid throwing the baby out with the bathwater. While more diverse semiconductor supply chains would improve resilience to future shocks, this does not mean abandoning the globalised model of production that has underpinned innovation, competition and falling prices in our industry over decades. 

Policymakers must resist protectionism and the view that individual countries should make and use their own semiconductors. Not only would this be costly, inefficient and detrimental to technological progress, ultimately it would also magnify – not reduce – the vulnerability of supply chains to local disruption. That would be the wrong lesson to draw from the present circumstances.

This article first appeared in the April/May 2021 edition of Industrial News: Electronics & Engineering.