It is 1982 and a class of primary school children are huddled around a television screen attached to a small beige box. Like a typewriter, it has a keyboard, but there is no paper. The screen flickers to life and the children are in raptures as they type and see letters appear on the screen for the first time.
This box was the BBC Micro, one of the first personal computers the world had ever seen. For those children, it was to mark their first experience of an object which was to provide the entire foundation of how they worked and lived.
Before long, millions of homes in Britain would have a personal computer of some sort – by the mid-1980s Britain's ownership of computers was higher than any other country in the world, even the US. Major industries sprang up around its development, from games makers to magazine publishers. The bosses of the computer makers Sinclair, Amstrad and Acorn - which had built the BBC Micro as the successful winner of the tender for the BBC sponsored Computer Literacy project - became household names, and found themselves courted by politicians including Prime Minister Margaret Thatcher, who opined that “Those now at school will need to adapt to each new technological advance if we are to remain an industrial power”. For a brief moment it looked like Britain's computer manufacturers would rule the world.
From little Acorns…
It was, as we now know, not to be. After a period of rapid growth which saw the stock market flotation of Amstrad, which had expanded its sights into office computing, financial mismanagement and technology failures saw the UK’s home grown platforms disappear. Acorn ploughed on with its Archimedes platform, but despite its superior technology found itself unable to compete with the might of the Wintel architecture – the triumvirate of Microsoft operating system, IBM PC architecture and Intel processing chips - which remains the dominant standard for computing worldwide today.
Wintel’s dominance was built on its open architecture, in contrast to the closed systems adopted British makers. As Acorn founder Herman Hauser later reflected, “we should have licensed our hardware and software to anyone that wanted it…. we thought our wonderful, proprietary technology gave us an advantage over competitors, so we hogged it.” A lesson for Apple (US:AAPL), perhaps, which remains wedded to a proprietary mindset and now faces a similar battle against Alphabet for control of the mobile operating system market.
But Acorn’s failure ironically provided the genesis of what is arguably the UK’s greatest technology success story: Arm. Built out of the technology developed to power the Archimedes, its chip designs would one day be found in most of the world’s mobile phones and tablet computers. Despite Acorn’s commercial struggles, its success with reduced instruction set (RISC) chip architectures had attracted the attention of Apple, which was looking for exactly the kind of low-powered but high performance capability that RISC offered for its first handheld computer, the Newton.
The device proved a flop – and nearly the undoing of Apple – but the joint venture launched by Acorn, Apple and manufacturing partner VLSI, along with the failure of Newton, serendipitously led to a business model that changed the way the world thought about chip manufacture and perfectly suited the de-industrialising UK economy. Rather than make the chips itself – and face massive inventory risk similar to that which had earlier almost bankrupted Acorn - it worked closely with partners to deliver designs from which it generated license and royalty revenues.
This innovation was critical. By the late 1980s it was estimated that the cost of establishing a semiconductor manufacturing plant was around half a billion dollars, a scale of funding that only governments could offer, but which the UK could not afford to provide. With Arm's model the capital cost was near-zero and manufacturing risk was taken on by partners, even though Arm continued to accrue manufacturing know-how crucial to the design process from its working relationships.
As former chairman Robin Saxby noted: 'to be the world standard, we had to get partners everywhere in parallel. And to get partners everywhere in parallel, we had to licence the technology many times'. The attractions of the business model and Arm’s reach were not lost on Japanese mega fund Softbank, which bought Arm for £24.3bn in 2016.
…but where are the UK’s mighty technology oaks?
The sale marked the end of the FTSE 100’s relationship with computing hardware. But restoring its technological prowess is crucial if the FTSE is to remain a major market. Technology companies make up more than a fifth of the S&P 500 – the equivalent figure in the UK is just 2 per cent, a major factor in the huge underperformance of UK indices during the Covid-19 crisis, particularly when compared to the US.
That figure could soon increase if, as has been speculated, Arm is again floated on the London market. But Softbank and Arm may instead choose another trade sale, with US chip giant Nvidia (US:NVDA) the front runner. That would continue a long established route for leading UK tech innovators, and one with another parallel in the 1980s boom, chipmaker Inmos, which after a chequered history was sold to French rival SG Thompson. Again, Inmos boasted technological superiority over its rivals Intel and Motorola, but fell victim to political expediency and a hesitancy by investors to see risky but high-potential projects through to the commercial success enjoyed by US rivals. As its founder, Ian Barron put it, “the death of Inmos was just another example of Inmos was just another example of the UK’s appalling history of failing to invest on the scale that is required to reap the full commercial benefits of technical success.”
There may be some truth in this; Inmos was always a political hot potato that swallowed up money that the Thatcher government was not keen to provide. But its capital-intensive manufacturing model must take some blame too – contrast its failure with the success that Arm built with its capital-light intellectual property based model.
Nevertheless, despite the many brilliant technological minds behind the boom – including the many companies that emerged from the Acorn alumni in the so-called Silicon Fen around Cambridge – political obstacles and impatient investors, often too focused on short-term hiccups rather than long-term growth potential, have rarely given them a chance to flourish at home. Even Arm’s sale to Softbank reflects this – its value today is expected to be closer to £32bn, even after the fire sale of a chunk of its profitable Chinese business in 2018.
As it was in the 1970s, the UK, through its universities, remains a hotbed of technological talent, particularly in areas such as artificial intelligence and fintech, but we see little representation of that on the FTSE. And it would be no surprise if Arm once again decided to seek the sanctity of the forward-looking US technology industry rather than face the harsh gaze of sceptical UK investors.
