NEW RULES, BRITANNIA
The new US export controls are not only hitting big tech companies such as Apple. Smaller British firms, such as chip firm XMOS, are feeling the fallout, too.
“The restrictions affect everything,” said Mark Lippett, the firm’s CEO. “Most of our activities on the consumer side are where these national security threats don’t really appear to be too relevant. And it obviously does impact our business. It impacts the amount of profit we make and our ability to invest in R&D.”
The pain is far from abstract. “It’s part of our everyday,” said Lippett. “Literally this morning, I’ve been talking about whether or not we can get a licence to supply a company in China that’s on the ‘Entity’ list for a product that is entirely benign. A very broad brush is being used to preclude doing business with companies throughout their product lines, and some of these are very, very large companies that make everything from smart thermostats to 5G infrastructure.”
Though he is sympathetic to the security rationale behind the new rules, Lippett believes they’re too expansive. Even relatively basic technology is affected. “We’re not the highest performance product for any given computing task that you can buy,” he said. “But we are nevertheless impacted by some of the same legislation that is designed to target those very high-end products, in some cases.”
He’s also worried about the downstream consequences of the new focus on semiconductors, which has seen different countries shift their industrial policy to support domestic chip manufacturing, which makes it harder for XMOS to compete. “The Chinese government has been subsidising silicon companies for a long time and that does affect us when Chinese companies can operate at significantly lower gross margins than we can,” said Lippett. “If you’re in a competitive environment with that dynamic, then if you’re not doing the same, you’re at a competitive disadvantage from the get-go.”
He points to how the US, South Korea and Japan are all actively supporting their semiconductor industries. Similarly, the European Union is midway through passing the European Chips Act, which will do similar – which, of course, Britain is not a part of.
What sort of support should the British government be giving British semiconductor firms such as XMOS? One intervention could be
to persuade the US to let the British government sign off on British chip exports to Chinese companies on the Entity list itself. “As far as the trade restrictions are concerned, I think the British government needs to wrest some control over it,” said Lippett. “At the moment, if I want to sell a trivial product to one of the companies on the Entity list, I have to get permission from the US agencies, and my guess is that a small UK semiconductor company is not going to go straight to the top of their list of priorities.
“That is an expensive process,” he added. “It’s a six-figure sum of money, and potentially a significant delay before we can even send [Chinese firms] a development board.”
Lippett also points to broader things that could make life easier for the semiconductor industry, such as working to improve the “availability of talent” of technically skilled people to design chips. And then there’s financing. “I’m not asking for gifts,” said Lippett, who suggests that the government could offer semiconductor firms loan facilities, or venture debt financing, which firms can use to purchase the expensive equipment they need to design and manufacture chips.
“There’s a rising tide of government support in the semiconductor industry, and unless we match it, we’re putting our industry under water.”