Rishi Sunak to unveil semiconductor partnership with Japan

Rishi Sunak will announce a ‘semiconductors partnership’ with the Japanese government during a visit to Tokyo on Thursday as the UK seeks to reduce geopolitical risk by diversifying its chip supply chain.

The UK prime minister’s announcement comes ahead of the publication on Friday of a British semiconductor strategy, which will outline the dangers to the UK’s chip industry from relying too much on a handful of supplier countries including Taiwan.

Sunak will say on Thursday that its semiconductor partnership with Japan will include “ambitious R&D co-operation and skills exchange”, the strengthening of each country’s domestic sectors and the bolstering of supply chain resilience.

The agreement will be part of a broader “Hiroshima Accord” between the UK and Japan — involving closer economic, security, energy and technological co-operation. It will be unveiled as Sunak visits a naval base in Tokyo ahead of the G7 summit in Hiroshima.

The partnership comes as the government is set to finally reveal its plan to develop Britain’s chip sector on Friday. This will feature £1bn of government spending over the medium term in chips that underpin all modern technologies, from smartphones to cars, according to two people briefed on its contents.

However, the amount pledged by the government is tiny compared with Washington’s “Chips Act”, which involves $52bn of subsidies and incentives to encourage semiconductor companies to build fabrication plants in the US. The EU has also launched its own “European Chips Act” with €43bn of state aid.

Scott White, co-founder of British group Pragmatic Semiconductor, which is developing small, low-cost plants for its ultra-thin chips, said £1bn seems like the “right level” for a country that has a smaller economy and industrial base than the US or Germany. But he added it has to be “distributed in a relatively small timeframe to make it really useful”.

“We can comfortably be profitable without incentives but if everyone is offering them elsewhere, that makes the cost of production higher here,” said White, who has previously said he would consider a public listing in the US if the government does not do enough to make Britain a financially attractive place to grow the company.

The UK’s semiconductor strategy will emphasise the need for Britain to reduce its dependence on semiconductor imports from geopolitically sensitive parts of the world such as Taiwan, the biggest global manufacturer of chips, which has long been under threat from its larger neighbour China.

It will address the need to diversify supply chains by working more closely with other international counterparts such as Japan, according to officials familiar with its contents.

The British government launched its review after the Covid-19 pandemic exposed the fragility of the global semiconductor supply chain, leading to a global shortage. The government had intended to publish the plan by autumn 2022.

Last year, the government blocked the takeover of Newport Wafer Fab, Britain’s biggest semiconductor plant, by Nexperia, a Chinese-owned company, in a sign of growing sensitivities.

The review is expected to say the UK cannot and should not meet all its semiconductor needs domestically and should focus its efforts on value-added areas such as research and design, compound semiconductors and “advanced packaging”, by which several chips are combined into a single product.

Though the UK has a marginal role in making chips, it is home to two world-leading chip design companies, Arm and Imagination Technologies, which account for around 40 per cent of global intellectual property development in the sector.

It is also home to companies developing compound semiconductors, which are made from other materials instead of silicon and are a promising new area of research.

Additional reporting by Kana Inagaki