What will it take for the UK semiconductor industry to innovate and grow?

“People underestimate the strength the UK already has in semiconductors,” says Rupert Baines, serial entrepreneur and former CEO of UltraSoC. “There is a missed opportunity. We are so much stronger than people appreciate.”

For Baines, a popular and respected voice in the UK’s semiconductor space, this is quite simple. The UK has the talent, clusters, and history of world-class innovation, but it lacks scale, coordination and long-term investment. Unless those gaps are addressed, Britain risks remaining a collection of promising labs and start-ups rather than a globally competitive industry.

Baines speaks from experience. His career spans decades of building and scaling semiconductor businesses, from pioneering broadband while at ADI in Boston, to small cell wireless at PicoChip, then turning around Cambridge spinout UltraSoC, later acquired by Siemens. Today he chairs start-ups Forefront RF and RANsemi, co-chairs the UKTIN Semiconductor Expert Working Group advising the Department of Science, Innovation and Technology (DSIT), and sits as a non-executive director at the Compound Semiconductor Applications (CSA) Catapult. He is also a Trustee of charity UKESF, encouraging young people to study electronics. 

Recent steps from government, such as the announcement of a National Semiconductor Centre as part of the UK’s industrial strategy, are in Baines’ view a welcome move in the right direction. “DSIT did listen,” he says, noting the long-running calls from industry for a more unified approach. “There’s been more investment going on, and this idea of the National Semiconductor Centre to make that happen will be really good.”

But while the commitment is welcome, he cautions that it will take more than a single initiative to bring together the country’s fragmented strengths. Cambridge, Bristol, Glasgow and Newport each have world-class expertise in different aspects of chip design, photonics and compound semiconductors, yet too often they operate in isolation, or even in competition.

“Cambridge is one of the best tech ecosystems in the world, alongside Silicon Valley, Tel Aviv and Taipei,” he says. “But you’ve also got astonishing strengths in Bristol and the south west, Glasgow around photonics, and Newport for semiconductor manufacture. The problem we have is bringing them together.”

A fragmented voice

In compound semiconductors, the UK is rare in combining research excellence with manufacturing capacity. However, the lack of cohesion has meant successive governments have underestimated the sector’s potential. White papers from Baines’ own working group, from TechUK, and from the Institute for Manufacturing all reached the same conclusion – the UK is stronger than it realises but risks squandering that position without coordination. The UK National Semiconductor Centre could be the antidote to this but it’s still in its early stages.

Geopolitical shocks have certainly made semiconductors a matter of national resilience. Covid-era shortages exposed the risks of just-in-time supply chains. Baines says that sovereignty, supply chains, and security of supply are really driving all of this, adding “we’ve seen what happens when critical dependencies are single-sourced.”

While the UK cannot replicate Taiwan’s foundry scale or the US’s subsidies, Baines believes targeted investment in its areas of advantage, such as compound semiconductors, photonics, and chip design, can make sovereignty more than a slogan.

Closing the investment gap

When it comes to investment, Baines is cautiously optimistic. “We’ve got a really good early-stage ecosystem,” he says. “We now have VCs who understand deep tech. We’ve got accelerator programmes who are really, really good and add a lot of value.” Like many UK industries however, scaling up is another matter. Baines talks about how “shockingly hard” it is for B and C funding rounds in the UK. 

In North America, large pension funds such as CalPERS or Ontario Teachers have long been willing to back early-stage technology, enabling longer-term funding to help businesses scale. In the UK, by contrast, venture funds remain heavily reliant on tax-advantaged retail investors (through the EIS scheme) with limited capacity.

Baines says this may now be changing. Reforms championed by the Treasury and the Mansion House Accord could see UK pension funds commit up to 5% of their assets to alternative investments. “Anne Glover [chief exec and co-founder of Amadeus Capital] said just 0.007% of pension assets in the UK were invested in VC compared to 2% in North America. If just 0.5% of the funds, one tenth of the Accord, were invested, it would mean a 70-fold increase in VC financing” says Baines.

It’s also interesting to see that the British Business Bank has now received regulatory approval from the Financial Conduct Authority to provide UK pension funds and other institutional investors with access to the Bank’s extensive pipeline of UK venture capital opportunities. 

Another issue, however, is people and skills. While Baines says “there is a lot of talent” in semiconductors he admits there is also “a savage demographic problem,” not uncommon in the world of tech.

“It’s too male and it’s too old,” he says. “The diversity is terrible. It really hasn’t shifted in 20 years. But everyone has grown older and more have retired.”

“If those [pension] funds were to invest just 0.5% of their funds it would mean a 70-fold increase in VC financing”

Rupert Baines

Baines points to the UK Electronics Skills Foundation’s bursary scheme as a great example of how even minor initiatives can have a far-reaching impact.

“A relatively small amount of government money has a huge payoff if a bright kid decides to get into electronic engineering, instead of doing just maths to go into the City,” he says. With the promise of £1k a year, paid work placements and connections with potential employers as part of the deal, it’s easy to see the attraction. But demographic renewal will take time, and the scale of the challenge remains large.

For Baines though, one encouraging sign is the willingness of experienced founders to mentor the next generation. He says he has been fortunate in having some fantastic bosses and mentors during his career and now he wants to pass on that knowledge and experience. “I feel there’s an obligation on me to do that for the next generation,” he says.

So what about the future? Baines remains excited by the technology itself. It’s in his warm and ebullient nature, of course, but more than that, he is well placed to see that the UK is not short of ideas or technical depth. What it needs is scale, coordination and sustained investment.

“We can’t do everything,” he says. “But in compound semis, CMOS design and photonics, we’ve got world-class expertise. If we back it properly, we can compete with anyone.”