Wave Systems Corp. (fka WAVXQ)

[Methinks]

Arm and Brexit Challenge U.K. ‘Tech Sovereignty’

https://finance.yahoo.com/news/semiconductor-corporation-moody-rates-semiconductors-180924581.html

(Bloomberg Opinion) -- Tech has suddenly become a defining issue for the U.K. government. A $40 billion deal for Cambridge-based chip designer Arm Ltd. comes as technology policy has created an obstruction in Brexit negotiations. The government that hailed Arm’s first sale in 2016 as a sign of Britain’s post-Brexit allure has come a long way.

Britain’s EU trade talks — and possibly a future trade deal with the U.S. — are poised on a knife’s edge. Prime Minister Boris Johnson and his chief advisor, Brexit campaign mastermind Dominic Cummings, believe the EU’s rules governing subsidies and other state aid to industry get in the way of post-Brexit Britain becoming a science and technology powerhouse. They are threatening to walk away from the trade talks, and to break the U.K. treaty commitments, to avoid the EU’s rules.

On one level, this seems an odd fight to pick. It’s not that Britain lacks innovation — as the spinoff of Arm from the now defunct British computing company Acorn shows. On the contrary, the U.K. has a thriving startup scene — at least, by European standards. By the end of 2019, the U.K. had 77 startups valued at more than $1 billion, more than twice as many as Germany, the next biggest, according to Dealroom, a data provider.

Nor can it be said that U.K. startups are starved of capital. The $13 billion in venture funding secured by British firms last year was more than that won by French and German startups combined. The U.K. government also provides tax credits and investments to spur innovation and startups.

But you can see the concern. The country that invented graphene has struggled to commercialize its innovations and hold on to companies once they reach a certain size. Arm, acquired by Japanese group Softbank Group Corp. and now by U.S. chipmaker Nvidia Corp., isn’t alone. Artificial intelligence firm DeepMind was bought by Google.

Those losses, as well as the U.K.’s dependence on Chinese mobile company Huawei Technologies Co.’s 5G technology, seem to be what has prompted the focus on building better state support for the country’s tech sector.

One long-standing problem is that Britain underfunds research compared to its major trading partners. The 37.1 billion pounds ($47.5 billion) that the U.K. cumulatively spent on R&D in 2018 represented just 1.7% of the country’s gross domestic product — less than both the 3.1% spent by Germany and the OECD average of 2.4%. Google parent Alphabet Inc. alone spent $27 billion on R&D in the 12 months through June.

But the EU state aid regime isn’t to blame. The vast majority of state aid is allowed automatically. Rather, the U.K. has generally chosen to provide less aid than other members. In 2019 Britain, for example, spent far less on subsidies to companies (0.34% of GDP in 2019) than Germany (at least 1.45% of GDP) and France (0.79%) did.

In 2018, the European Commission approved a plan to give 1.8 billion euros ($2.1 billion) of public funding to the semiconductor industry, whose research and development costs are the highest in tech. France committed to contributing as much as 355 million euros to help its chip companies, Italy chucked in 524 million euros and Germany gave 820 million euros. All have chipmaking giants, from Franco-Italian STMicroelectronics NV to Infineon AG and Robert Bosch GmbH in Germany.

The U.K. sought permission for just 48 million euros, yet still hasn’t paid any of it. That’s partly because the U.K. has tended to invest upstream, particularly in academic research, leaving far fewer funds available to help innovative companies translate their ideas into products. A revised state aid policy could provide R&D cash credits to foster technology clusters and help them move toward commercialization.

There is no question that, done well, governments can make a huge difference in the development of a vibrant technology sector; Singapore, Taiwan and Israel are good examples of this. And yet the idea of an expansive, new policy strategy for the tech sector makes many Conservatives nervous, not least because picking winners is risky.