Newport Wafer Fab is one of the high-tech companies that has been based in the area for decades
Newport Wafer Fab is one of the high-tech companies that has been based in the area for decades © Crown Copyright

Coal and iron were the foundations on which the south Wales city of Newport was built during the industrial revolution, and their decline left its economy struggling. But a new industry is growing that the region hopes will put it at the centre of the next revolutions — in computer chip technology.

In a factory that resembles a high-tech laboratory more than a production line, advanced materials called compound semiconductors are produced. These “compound semis” form the basis of computer chips that are tipped to power everything from electric cars to ultrafast 5G internet and smart energy grids.

“We put very thin films on the surfaces which give the device its performance characteristics,” explained Drew Nelson, chief executive of IQE, which owns the facility. “All the future technologies you can think of will be impacted heavily by compound semiconductors.”

IQE is part of a “cluster” centred on Newport that has been formed by an alliance of businesses, universities and local authorities seeking to build a Welsh version of California’s Silicon Valley.

Newport Wafer Fab adds conductive and insulating layers to computer chips
Newport Wafer Fab adds conductive and insulating layers to computer chips © Crown Copyright

The area has been home to factories producing silicon semiconductors for several decades, and those behind the cluster are hoping to build on the concentration of facilities and expertise to put the UK at the forefront of an industry expected to underpin future electronics.

Compound semiconductors combine two or more elements and have superior properties to silicon, which has been the basis of integrated circuits since the late 1950s.

Those behind the Newport cluster hope that developing the raw materials for chips in Wales will encourage the reshoring of electronics manufacturing that migrated to lower-cost countries from the 1990s.

“As you go further along the supply chain, the value increases and therefore so does the margin and profit. The UK needs and wants to be at the end part of that supply chain and designing the systems that use those compound semiconductors,” said Stephen Doran, chief executive of Compound Semiconductor Applications Catapult, part of a government-backed network of technology and innovation centres.

The potential prize is huge: the global silicon market is valued at about $480bn in 2018, with compound semiconductors sales estimated at $86bn, of which the UK accounts for about 10 per cent. The silicon market is forecast to grow at a compound rate of about 2 to 3 per cent annually during the next decade, while so-called “compound semis” are expected to see double-digit growth over the same period, according to estimates from the Compound Semiconductor Applications Catapult

Currently, many semiconductor products produced in the region are shipped overseas to south-east Asia and Mexico, where they undergo further processing and are integrated into subsystems and final products.

Grouping companies and research institutions together is designed to encourage the collaborative working that is needed to boost their production.

For example, IQE’s “foundry” produces highly complex atomic layer combinations, called “epiwafers”, which are sent to fabrication plants, or “fabs”, to make chips. The nearby Newport Wafer Fab adds conductive and insulating layers to build anywhere from 300 to 50,000 chips on each 8-inch wafer.

The company has been around for almost four decades and employs 450. While 90 per cent of its revenues still come from silicon chips, it is looking to expand sales of compound semis.

Newport has long been synonymous with the steel industry
Newport has long been synonymous with the steel industry © Dave Etheridge-Barnes/Getty Images

“With compound semiconductors there’s much more interaction between the design and the process. A lot of the function of the chip is actually built into the process architecture — the chemistry itself,” said Sam Evans, NWF director of external affairs.

“For more complex value-adding assembly processes, reshoring would make economic sense as you need advanced manufacturing techniques. That may be low-volume compared to building memory chips, but it’s the type of thing Britain is good at,” he added.

Welsh economy minister Ken Skates agrees. “These are not start-up companies, they have each been here for well over three decades and we know the key to our support is encouraging the cluster to work collaboratively — the whole is much greater than the sum of the parts,” he said.

Cardiff University, home of the Institute for Compound Semiconductors, has said the Newport cluster, which is modelled on similar initiatives in Europe, could create 3,000 new jobs in the cluster by 2025.

The South Wales electronics industry has had false starts before, however. IQE’s factory is on a large complex built for South Korean company LG Electronics, which received public grants and at one point employed 3,000 people making television components, but it left in 2006. Today, IQE is among the UK’s top-10 most shorted stocks — a sign that some investors are betting its share price will fall.

The sector has to overcome a common pitfall in the UK, which despite being a leader in scientific research and development, often struggles to turn discoveries into commercial innovations. It will also face fierce competition from Germany, China and the US, which often have greater economies of scale and deeper pools of capital.

But in Newport some draw optimism from the region’s heritage. “Wales produced one-third of the world’s coal in the first industrial revolution and we played a big part of that,” said Mr Evans of the Newport Wafer Fab. “In the fourth industrial revolution, the key component is compound semiconductors . . . We are sitting on something which is potentially huge.”

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