HL Deb 02 May 1986 vol 474 cc567-78

3.9 p.m.

Lord Birdwood rose to ask Her Majesty's Government what plans they have formulated for the development of gallium arsenide as a United Kingdom resource.

The noble Lord said: My Lords, I want to sell you a product. It is incredibly difficult to make. It is very expensive. For it to work properly we have had to learn how to manipulate materials to extraordinary degrees of purity and to tolerances which mean that a few misplaced molecules can render them ineffective. This product is a man-made substance called gallium arsenide. Grossly oversimplifying, in electronic designs gallium arsenide goes on where silicon leaves off.

"So what?", we may ask. If we get a satisfactory answer to my Question this afternoon (and I am sceptical that we shall) we can peer into the industrial future of this country with just a little more confidence. If we do not get a satisfactory answer, then we can wave goodbye to a huge sector of technical competence. We may as well abandon any kind of global aspirations in key areas of tomorrow's electronics. We will always be dependent on others in areas that affect our national security, our ability to make or measure or even communicate.

Fifteen years ago in this House I accused our political masters of letting this country's machine tool capability dwindle to trifling levels. The House was reassured then that, on the contrary, things had never been healthier in this important industrial sector. So much for those reassurances from the Government of the day. And it is going to happen again. I accuse successive governments and, frankly, any government of an approach to technical industry compounded of apathy, laziness, ignorance and complacency. Need I remind your Lordships that our main exports to Japan are scrap iron and industrial bricks?

I put my Question this afternoon on gallium arsenide for two reasons. The first is because I really want to know the answer. I want to know what the thinking has been about this product at this time and what is the strategy for its future in this country. Secondly, gallium arsenide is a perfect symbol of the things we do wrong. It is absolutely typical of our national delusion that research by itself makes money. It is absolutely typical of the fragility and mutual distrust in any so-called collaboration between Whitehall and industrial interests.

First, perhaps I might give a very short summary of the stuff itself. Compared to silicon, as an electronic device raw material it has extraordinary advantages. Elections travel inside it five or six times faster than in silicon. This multiplies up to computing speeds perhaps 10 times as fast; and in electronics speed really is hard currency. It emits light—something that silicon cannot do. It absorbs sunlight more efficiently, making possible better solar cells. It has a much higher tolerance to radiation, making it the only choice for future space devices. It is tolerant of high temperatures, reducing cooling systems' weight. It uses less power than silicon. It can combine the processing of both light and electronic data on a single chip.

Lastly, every phase of its manufacture is created. This means that we can design into gallium arsenide devices characteristics and qualities to a degree impossible in any materials that have gone before. These aspects are not new. There is even an old joke about gallium arsenide. It is referred to as the electronic chip whose time has come. It always was and always will be the electronic chip whose time has come. But the truth is that the future of gallium arsenide has arrived now. It will never replace silicon. It is too difficult to make, and hence too expensive—over 20 times more expensive. But a whole new technology of complementary silicon-gallium design philosophy makes obsolete everything but the most pedestrian applications of chip technology.

This is not the first time this subject has been aired in Parliament. In March of last year in another place the honourable Member for Yeovil initiated a debate on gallium arsenide which was answered by the Minister, who outlined certain responses and initiatives which were being contemplated. In the last 12 months one crucial report has been completed, usually referred to as the Coupland Working Group report, prepared by the Advanced Devices and Materials Committee, and entitled A UK Strategy for Gallium Arsenide. That commendably clear document makes a number of technical comparisons between gallium arsenide and silicon and focuses on the central issue which must hang over any development strategy; the key problem in the application of the technology lies in predicting which, if any, of the fundamental factors in its favour is sufficiently significant to generate a business return commensurate with the investment required. I am sure that your Lordships will have spotted that that quotation was virtually verbatim.

The Coupland Report refers to a study commissioned by the Department of Trade and Industry from McIntosh International. I have a summary of the latest thinking from that source prepared for a workshop on the material held in Paris a week ago.

One of the problems associated with contemplating any technology which is at the threshold of explosive growth is some kind of prediction of the size of the explosion. However, even the most prudent evaluations of the market value of gallium arsenide integrated chips breaks through a world demand well over 1 billion dollars in 1990. At the top end of the research evaluations for predicted markets, we have figures of something approaching 7 billion dollars in 1992 and an optimistic 30 per cent. penetration of gallium arsenide into a total chip market of 70 billion dollars in 1995.

I could go on virtually interminably cataloguing those and other huge financial numbers. It would serve no purpose other than to underline the fact that we are talking about global levels of investment and return. Are those initiatives, some by companies, some by governments and some by venture investments, all being taken for the fun of it? Are the final objectives high risk, low yield, profitless adventures to exploit a laboratory phenomenon? No, of course they are not.

The massive expenditure on the development of gallium arsenide into a realistic production material has been authorised by people in other countries who know exactly what they are doing; people who recognise that, given courage, dedication and the appropriate political will, capability in gallium arsenide is not only an essential strategic move but presents opportunities to develop and hold markets that span the world.

This is the point at which I must refer to the Alvey programme, which so many Members of your Lordships' House have welcomed and rightly regard as possibly the most important collaborative plan in advanced technology to emerge in this country for a decade.

As is the nature of powerful government programmes, the predilections of the designers of those programmes deeply influence the actions and thinking of the participants. The Alvey programme is dedicated to developing silicon chip-based technology. If we were to hold our own in silicon technology, there was some hefty catching up to do and Alvey gives us the tools to do it, but was the logic of Alvey as impregnable as it seemed? I, for one, would not be party to any destruction of Alvey and the general warmth with which industry regards that initiative is undiminished, but there is no doubt that the existence of the programme has slowed down and, in come cases, halted movement forward in gallium arsenide technology.

I feel sure that this afternoon my noble friend will be able to spell out how important modifications to the Alvey program me will breathe fresh thinking into industrial and government attitudes towards the development of a production version of gallium arsenide in the United Kingdom.

To get a device into production, a number of technologies have to be available, compatible and managed. One can imagine it as a chain or path with a sequence of identifiable links or stopping places. One would think that any one of those links could be isolated, delegated to elsewhere and put back into the production chain on its merits. That is true of, say, a car, where the engine can be sourced from elsewhere when the car designers have specified its size and performance.

I must get over this afternoon the point that matters in micro-electronics are profoundly different. The party which controls the design and making of the gallium arsenide content of the device hauls in the value-added steps which lie on both sides of the production sequence. It is as if the man who made the engine for the car had to make all the transmission components and had to control the oil companies that made the petrol.

This is really a key point to comprehend. It means that letting a small amount go elsewhere seems, on the face of it, a small sacrifice compared to the full commercial benefits from the development to production sequence. This just blinds ourself to the truth. A senior strategist in one of the country's largest electronics companies said to me a matter of days ago that some equipment makers are concerned about their continued existence unless this is openly recognised.

If this Question achieves nothing else, I want it to hammer home the different magnitudes of expenditure in nourishing a technology from seedling stage. Again, your Lordships are aware of typical industrial ratios. In electronics, we must think in terms of £100 spent to arrive at a product in the market place for every £1 spent in proving a usable hypothesis. Again, these ratios are irreducible because there can be no other end point for any effort but to address a world market.

I was ungraceful a moment ago in the words I used about governments. I take them back. We need the goodwill of government now and in the years to come. To be fair, there probably never has been a time when more creative thinking has gone into collaborative missions and ideas than does so today. The department's role in these initiatives is laudable. In this country especially we have a situation of breathless pause while certain large companies eye each other and Whitehall to see who will jump first. It is understandable. Nobody wants to plunge heavily bearing a lone risk in this untried area. The companies in what one could call the "user club", who will be customers of gallium arsenide, are invariably going to be companies who can be producers. The dilemma for the company is whether to let somebody else take the risk, spend the money, and then find oneself as the user at the mercy of a supplier who is also your competitor.

In the Coupland Report the options for action were clear. Option one was to form a completely new commercial company to address the future of gallium arsenide as a national resource. The Coupland Report compilers have actually gone for a co-operative gradualism with substantial European involvement. Speaking for myself, I believe that this option of a new company was, and is, the best way forward. It demonstrates what one could call a championship, in its proper sense, for gallium arsenide which could be shared by Whitehall and industry alike. I believe it would be welcomed by the Ministry of Defence, whose needs for this material will soon be pressing. It would give some hope of participation in SDI on the device side where we now have none. I believe it will be financially viable from a remarkably early stage.

My noble friend will certainly have seen the message from the electronic components EDC secretariat, pointing out some of the efforts by industry. These are remarkable. Throughout the 'eighties—and I am talking about all aspects of electronics investments— firms have invested at the rate of £50 million a year, year on year. They ask for a stable and supportive framework. No more moratoriums, please. I will be more than interested in my noble friend's comments also on MISP in the context of this Question, or indeed the electronics industry as a whole. From recent statements at ministerial level, we know that the idea of hybrid creations is almost acceptable where Whitehall goodwill and funding are recognised as a creative commercial force.

This is the Friday before a bank holiday, but I make no apology for raising a subject which seems wilfully obscure. Obscure it may be; important it certainly is. Without a coherent view of this oddly named man-made crystal, we put even further at risk what standing we have in the frontier technologies of the developed world. I beg leave to ask the Question standing in my name.

3.25 p.m.

Lord Lloyd of Kilgerran

My Lords, I am sure that noble Lords will wish me to thank the noble Lord, Lord Birdwood, for raising this subject and for his interesting speech indicating the characteristics of gallium arsenide and its potential importance to the development of UK industry and of course to UK defence. Gallium arsenide has been known for a number of years and I have come across it in the last few years in my capacity as honorary secretary of the Parliamentary Information Technology Committee, which is affectionately known as Pitcom. I am aware of the reports to which he has referred and also of the suggestions he has made, but on a sunny Friday afternoon before the bank holiday I will resist the temptation of amplifying what the noble Lord has said—

Noble Lords

Hear, hear!

Lord Lloyd of Kilgerran

I am glad to have the support of the Labour Front Bench on that ground at least.

At least I can say this. Gallium arsenide is a vital element in fast computer development. I am sure that many noble Lords will be aware of the initiative taken by a number of firms in using gallium arsenide in the course of their research. Your Lordships will of course know of the vast investment made by the Plessey Company in projects, many of them secret, associated with defence sales as well as in industry using the characteristics of gallium arsenide. Therefore, when we know that firms like Plessey have made such an investment in gallium arsenide, what the noble Lord is asking the Government to do is to tell your Lordships what plans they have formulated for its developments as a United Kingdom resource. The phrase "United Kingdom resource" is full of potential for future success or failure, and I would emphasise the phrase at this stage.

I do that for one main reason. The noble Lord, Lord Birdwood, made no mention of what is happening in a USA context or of what is happening in a EC context. In the course of professional activities, I am fully aware that American interests somehow try to dominate what happens in the United Kingdom and in the EC. They use those powers of extra-territorial rights, about which they are so pleased, and anti-trust arrangements, although anti-trust arrangements have become very much diluted in the last three years under the Reagan Government.

There has been no mention so far—and I should like to hear what the Government have to say—as to whether they have plans in a EC context. I wonder whether the research work on gallium arsenide could, for instance, come within the well-known Esprit project which your Lordships discussed a few weeks ago. One characteristic of the Esprit project which appeals to me is that about a dozen companies in Europe have got together to help in certain research projects without any problems arising from patent rights, intellectual property rights, competition rights and so on. I apologise for the fact that it is only a few minutes ago that I indicated to the noble Lord that I would be asking questions about developments in a EC context and I do not expect that he will be giving an answer during the course of this debate.

It may be that the Government have ideas of developing research on gallium arsenide in the context of the Eureka EC project and, if he is going to suggest that, perhaps the Minister would endeavour to indicate how far it is possible for British firms to protect their rights in future developments in that area.

I do not propose to take up any more of your Lordships' time. I am not as sceptical as the noble Lord, Lord Birdwood, about the reply of the Government on this important matter. I shall not pursue the interesting channels that the noble Lord tempted me to enter. The Government are fully aware of the great importance of the development of gallium arsenide. To use the happy phrase of the noble Lord, Lord Birdwood, we are now discussing a substance which is "at the threshold of explosive growth" and it has to be nourished for the benefit of British resources.

3.31 p.m.

Lord Williams of Elvel

My Lords, I too shall not detain your Lordships very long. I must express the gratitude of the Opposition to the noble Lord, Lord Birdwood, for raising this Question because it is a question of the technology of the future and also a question of what government could or should be doing to support the development of technology. At the outset, I must say that we on this side of the House take fully the point made by the noble Lord, Lord Birdwood, that you cannot be the man in the middle of this technology. You have to have the full range; otherwise you will be dominated by the man who stands in the middle and you will be in an inferior position compared with your competitors.

I must also at the outset put in a commercial plug for the University of Wales Institute of Science and Technology to which I am very grateful for the information it has given me on gallium arsenide. I would never pretend to be an expert on the subject. The University of Wales Institute of Science and Technology ran a course in April, as I am sure the noble Lord, Lord Birdwood, will know, on gallium arsenide for devices in integrated circuits, and it is I think in the forefront of trying to encourage research into this important material and its applications.

As the noble Lord, Lord Birdwood, pointed out, the department has an internal working report, the Coupland Report, from which he quoted. The report came out with a certain number of options. One important point made by the Coupland Report which I hope the Government have taken fully on board—this was confirmed by the intervention of the noble Lord, Lord Lloyd of Kilgerran—is that the technology of gallium arsenide will be at the heart of all future electronic systems. I quote directly from the report: That this will happen is not in doubt. What is in doubt is the timing and rate of change". It is this uncertainty that lies behind the wide range of market forecasts.

The noble Lord, Lord Lloyd of Kilgerran, asked about the EC context and questioned whether we were in danger of falling behind major competitors in the field. The noble Lord, Lord Birdwood, drew our attention to the fact that we are in a state of pause at the moment—nobody quite being certain who was to do what. I note that the noble Lord, Lord Birdwood, came back to the option of a joint venture company that was mentioned and, as the noble Lord said, rejected by the Coupland Report. It is on that point that I should like to spend one or two minutes.

We hear a lot in this House about the enterprise culture. Here we have a number of very distinguished enterprises which participated in the Coupland Report—I do not want to read out the names of the distinguished people from distinguished companies who sat on that body—and it appears that the net result is that they come back to the Government, as the noble Lord, Lord Birdwood, comes back to the Government, and say, "The investment in this new technology is so risky but the returns are potentially so great that no corporate finance director in his senses would invest the full amount in order to make these substantial returns, so we have come back to the Government to do it for us". The enterprise culture is, as I understood it, designed to ensure that that type of investment will be secured by the private sector and that there will be no need for the Government to intervene in those enterprises; it is for the private sector to determine what is the best allocation for funds on a short-run and on a long-run basis.

I believe that the noble Lord, Lord Birdwood, has absolutely exploded that particular hypothesis. I hope that the noble Lord, Lord Brabazon of Tara, will not come back to the theory that it should be for the enterprise culture to determine whether or not this country has a position in gallium arsenide in the future. But if the Government are to be called upon to intervene—and I believe that they should intervene and that they should take a leading role—then I ask myself and I ask your Lordships: what will be the return to the Government on the investment that they are to make?

I hear a lot, and I read a lot in the Coupland Report, about how the Government must collaborate with private industry in ensuring that all these desirable things happen; that we have a production version of gallium arsenide; that other countries are overtaking us; that the Japanese are doing this; and that, as the noble Lord, Lord Lloyd of Kilgerran, said, the Americans are doing that.

If the Government are to be asked to intervene, then it seems to me that it should be possible to say on behalf of the Government, "All right—let us form a joint venture company, but let it be a joint venture company in which, if the Government are going to put up risk money from the taxpayers, then the Government will have equity participation." That does not seem to me to be wholly illogical. I noticed the noble Lord, Lord Birdwood, nodding, and I rather gathered that perhaps that is something he would consider appropriate in the context of his plans.

It seems to me intolerable that while private companies are quite happy to spend money on short term projects where they can see the return, where there is a vast market opening up in front of us as a country, and where the Government are rightly involved, that government investment should be considered simply as a method of propping up private research until such time as the returns are visible on the horizon for a corporate finance director, and then private companies will make the investment.

Lord Lloyd of Kilgerran

My Lords, I am grateful to the noble Lord, Lord Williams, for giving way. Is he not rather exaggerating the position? There are certain firms such as Plessey who, without government help, are making a great deal of investment in this very field.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his intervention. Indeed, there are companies that are making an investment; but the message of the Coupland Report and of the noble Lord, Lord Birdwood, is crystal clear. I doubt whether your Lordships can get away from it. That investment is a drop in the ocean compared with what is really required to realise this market, which may be of the order of 1 billion dollars a year or may be of the order of 7 billion dollars a year. That is a matter to be determined in the future. The investment actually being made is really no more than a small drop compared to what is required.

I ask the noble Lord, Lord Brabazon, to tell the House what plans the Government have, in the context of developing gallium arsenide as a national resource, to make sure that if the Government are to put any taxpayers' funds into supporting that project—which we in the Opposition would wholly support—the taxpayer will get a proper return on the funds that he puts up. We recognise that that is risk capital. We recognise that the taxpayer may have to write off his capital if it does not work. Nevertheless, if it does work then we ought to see exactly how much money the taxpayer will get in return.

I will not detain your Lordships on, as the noble Lord, Lord Lloyd said, a sunny afternoon—

Lord Lloyd of Kilgerran

I said before a bank holiday, my Lords.

Lord Williams of Elvel

My Lords, I have one more point on which I should like the noble Lord, Lord Brabazon, to comment, and that is the expenditure recommended in the Coupland Report. On page 20 of the report, there are summarised the funds required in order to get a project of a collaborative nature, if I may put it that way, off the ground. One is talking about a total of £25 million of Government money. Does the Minister feel that that is sufficient, and does he feel that it is in the right proportion? Before the Minister sits down, I hope that if the noble Lord, Lord Birdwood, is not satisfied with his answer, then he might wish to come back on that question.

It seems to me that that is a very thin programme for what we are talking about. I should like to see the Government come out very firmly and say, "Yes, this is a technology which we recognise is risky. This is a technology where the market is as yet undetermined. This is a technology in which we are to a certain extent tending to fall behind our competitors; and this is a technology in which it is vitally important to have the production version rather than simply to encourage research". I should like the Government to firmly and fairly say that.

In addition, I should like the Government to say, "Not only do we believe that, but we believe that private industry is not in a position to provide these things and that we, the Government, will step in and help private industry; but on the basis that there will be a proper return to whatever investment the taxpayer makes".

3.41 p.m.

Lord Brabazon of Tara

My Lords, I should like to thank my noble friend Lord Birdwood for asking the Question that has allowed us to hold this short debate on the Government's plans for the development of gallium arsenide. He addressed mainly three points: the importance of the technology, the lack of a widespread appreciation of its importance, and the high cost of bringing the technology to the stage of profitable manufacture. The points are well taken.

The Government welcome this debate, as they welcomed one held in another place on 11th March last year, because it allows us to shed light on what to many is a very esoteric subject. But new technologies often appear that way, more so in a field such as electronics than for areas such as, for instance, surface coatings which might produce palpable results like the non-stick saucepan. It is inevitable that new technologies take time to get into the textbooks and to be absorbed by a new generation of students.

I shall not repeat the characteristics of gallium arsenide, which my noble friend described so well, merely confine myself to repeating that the importance of gallium arsenide in advanced applications is widely accepted. But the uncertainties surrounding the course of development of the technology and, consequently, the precise market sectors in which it will feature have led to the situation where companies find it difficult to justify the risk of funding the level of R & D necessary to stand a chance of being successful on world markets. This has forced governments throughout the world to play a prominent role in stimulating the technology.

The main centre of present activity is the US where there is heavy military domination. Currently there are 50 to 60 companies in the field, many with defence interests and some in the more speculative digital integrated circuits field apparently positioning themselves for non-defence markets. Support by the US Department of Defense for gallium arsenide has now overtaken that for silicon and we understand that a 360 million dollar programme is being launched. The Japanese are also very active, concentrating more on optoelectronics and digital devices for computing and communications in the civil markets.

Within Europe, France, Germany and the UK are evenly matched, each with 100 to 150 scientists engaged in gallium arsenide research, with programmes comparable in size but differing in composition. Europe is certainly not out of touch with its competitors in the US and Japan but, while each of the European countries has performed well in part, progress has not been uniformally good. Resources could be used more effectively.

The UK has a high reputation for microwave and optoelectronic devices. Our major companies are Plessey (microwave, optoelectronic and analogue), STC (optoelectronic and digital) and more recently a growing GEC activity. We also have ICI Wafer Technology and MCP Electronics as materials makers. The main stimulus from the UK Government over the years has been from the Ministry of Defence and the Science and Engineering Research Council. The Department of Trade and Industry has supported projects in the gallium arsenide field through its microelectronics and optoelectronics programmes for a number of years. However, as the technology has developed it decided to ask for advice from the companies and academics on its electronic devices and materials committee on what its future policy should be. The result was the Coupland Report, to which my noble friend referred. It was named after the technical director of STC Components who chaired the working group. The report is available in the Library.

The report's major findings were that collaborative research on manufacturing processes and devices should be undertaken but, in view of the uncertainties in the market and in the technology, commitments should be limited to a three-year span. Demonstrator projects to provide market-pull were desirable and, since full production facilities would not be needed for about 10 years, pilot manufacturing lines should be set up. A flexible approach to targets would be essential.

The industry's reaction to the report has been very favourable. Representatives of device makers, materials suppliers and likely major users of gallium arsenide devices have reached broad agreement on a strategy and a series of projects to achieve it. They agreed the following objectives: first, to provide manufacturing facilities in gallium arsenide integrated circuits to meet the needs of UK users; second, to set up demonstrator projects to encourage early exploitation; third, to undertake directed research on manufacturing processes and devices; fourth, to secure maximum collaboration between organisations in the UK in order to avoid unnecessary duplication; fifth, to make full use of university work and the Ministry of Defence's programme; and, lastly, to pursue actively European collaboration.

The programme has been costed at approximately £60 million over three years. Such investment would be over and above existing planned investment by the industry. The industry stipulated a financial contribution of 50 per cent. from government to compensate for the high risks associated with the additional expenditure and to compensate for loss of independence and exclusive rights of exploitation.

I am pleased to tell the noble Lord, Lord Lloyd of Kilgerran, that discussions have also taken place between the British, French and German industries with officials present. The three countries are separately considering new initiatives in gallium arsenide and the time is opportune to consider European collaboration, perhaps under the Eureka programme. The scope for a joint programme where the national interests overlap wil be discussed during the summer and we hope that there will be a positive agreement at a second meeting of industrialists in September. I note the remarks of the noble Lord, Lord Lloyd of Kilgerran, about British firms' patent rights and I shall certainly draw them to the attention of those who are to take part in these meetings.

The Government strongly endorse the strategy proposed by the UK industry, including its readiness to join in discussions on a European programme. The Government are willing to provide financial support to individual projects from UK companies that fall within the strategy, including those on a European basis. The details of government support are under discussion with companies at the moment. I cannot go any further in reply to the noble Lord, Lord Williams of Elvel, as to the exact amount of money involved at this stage.

My noble friend Lord Birdwood referred to the importance of exploitation. The strategy I have described covers this but recognised that in its early stage of development the emphasis must be placed on R & D and pilot production. However, I can assure my noble friend that the importance of exploitation will not be forgotten.

My noble friend referred to the Alvey programme, and I think that the noble Lord, Lord Lloyd of Kilgerran, also mentioned it. With the limited resources available and the overwhelming size of the silicon market, we believe that the Alvey programme was justified in concentrating on the development of silicon technology. The United Kingdom momentum in gallium arsenide has not been lost and will be boosted by the industry's strategy.

The Government's record of support for microelectronics is a good one. With Alvey, the microelectronics industry support programme and other measures, such additional work in industry has been stimulated. The Government have said that they are prepared to support gallium arsenide projects also, as I have repeated this afternoon. To conclude, this debate has provided a welcome opportunity to bring to the attention of noble Lords the importance of gallium arsenide and to allow the Government to make a statement about their willingness to support industry's efforts in this area.

The noble Lord, Lord Williams of Elvel, asked me how the taxpayer will be rewarded for the investment that we shall probably put into this programme. I think that in general terms it is a matter of pump-priming. If this is successful, then the companies involved will end up paying back a great deal more in tax, I hope, than we put into the resource in the first place. However, I think that the noble Lord's question is an interesting one, if not somewhat wider than that on the Order Paper this afternoon. However, I take note of his views.

I should like once more to thank my noble friend for asking his Question. I hope that I have been able to give him some encouragement, or at least rather more encouragement than the noble Lord thought he was going to receive at the beginning of this afternoon.

House adjourned at nine minutes before four o'clock.