§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones1.12 am
§ Mr. Jack Dormand (Easington)
I raise the question of the future of INMOS tonight for several reasons, all of which are related to the uncertainty of that future. I am proud of the fact that INMOS was established under a Labour Government. It was a far-sighted decision, taken at a time when it was thought that there was some doubt about the manner in which the microchip industry would develop.
INMOS was formed in 1978 with the aim of ensuring that the United Kingdom had its own source of mass market microchips. Since then, £65 million of public money has been invested in the project, with another £35 million in loans and guarantees. The company made a loss of £20.4 million last year, although sales had risen from £2.1 million to £13.7 million—a significant increase by any standards. However, there is widespread agreement that there will be a profit next year.
INMOS's first product, the 16K Static RAM, has taken more than 70 per cent. of that specialised world market, selling to about 100 of the biggest computer and electronics companies. That market is still growing, but properly and wisely INMOS has begun to produce its version of the 64K RAM by which it hopes to be taken into profit more quickly. I hope that the Minister will confirm the basic facts that I have described, because they are relevant to my argument.
We read in newspapers and journals that INMOS is finding it difficult to raise the capital that is vital to the company's continuing success. I appreciate the vagaries of the money market, but I am puzzled that there should be this difficulty for at least three reasons. First, we are constantly told by the Government that the country's economy is well and truly on the upturn. Secondly, we are told that INMOS's record must give cause for confidence. Thirdly, we are told that it is an industry, the products of which are almost certain to stay in demand for a considerable time.
My view is supported by a report in The Guardian of 2 July in which it is said that Britain's problems in finding high risk investment are becoming a thing of the past. Mr. Gordon Edge, chief executive of the PA consultancy firm which is much involved in this industry, is reported as saying that this country's financial institutions have changed their attitude dramatically and that there is now no shortage of high-risk finance, not just for quick return ventures such as home computers, but for the long-term underlying technologies, such as microelectronics.
Why are the Government so hesitant about injecting more capital into INMOS? When a further £15 million was put into the company in February last year, it was suggested that that would be the last public money to go into INMOS. In view of the company's potential, we must assume, as we have had to assume with so many of this Government's actions, that it was a doctrinaire decision based on the free market and laissez-faire dogmatism that pervades everything that the Government do, regardless of the merits of the case.
The Government should think again and take heed of the view of Sir Ieuan Maddock, the former chief scientist at the Department of Industry, who, in an article two 152 months ago, argued that microelectronics, because of its nature, including the exceptional amount of its turnover which needs to be spent on research and development cannot be left to the influence of the market. His conclusion was unequivocal and forthright. He said:If the United Kingdom is to survive in this competition it will have to commit large resources and much national determination to the task.For the word "determination" we could substitute "will" in relation to this Government, because they are blind to the value and place of public enterprise in our society.
Recently I have heard reports that INMOS is to be sold off to private enterprise. In view of the Government's record, no-one would be surprised if they were thinking along those lines, but most reasonable people will agree that there is less reason to privatise this company than other industries which have been vandalised by the Government's denationalisation policy.
The Minister will agree that INMOS has built up a splendid reputation. I doubt whether any similar company could claim to have greater expertise or more dedicated management. In spite of its difficulties, it has become known for its innovation and design. Its factories at Colorado Springs and Newport in Wales are recognised to be among the finest in the business.
There is a danger of a doctrinaire destruction of public enterprise, simply because it is public enterprise. I hope that even this Government will not indulge in such folly, particularly at this stage of INMOS's development. INMOS claims that its Newport factory has the lowest operating costs of any semiconductor plant in the world. I do not know whether that claim can be fully justified. If it can, the Government would be hard pushed to justify a sell-out.
I am aware of the substantial changes that have taken place in the industry since 1978, when INMOS was established. There has been increased competition from Japan, but it would be foolish in the extreme to rely on that country, particularly when our own company is doing so well. If we had continued to rely on oil from the middle east instead of developing our own resources, we would have faced immense difficulties. It could be argued that there is a parallel with the microchip industry.
Inevitably, the multinationals have entered the field. INMOS remains Europe's only independent company in the world business of making microchips, and I have given an idea of its success.
On 25 June The Economist reported that some powerful business men whose firms use chips were lobbying the Government about keeping INMOS going under British control. It would be interesting and useful if, when he replies, the Minister could tell us whether there is any truth in that statement. After all, the Government claim to listen to business men. The Minister should be able, without hesitation, to confirm or deny the reports which we read on this aspect of the matter.
It would also be valuable if the Minister could say how far, if at all, talks between INMOS and the American firm Commodore have gone. They have been reported in at least two newspapers, but the Government seem determined to maintain secrecy about what could be a most important development. Has any other firm shown the same interest? Are the Government encouraging such discussions?
153 Rumours abound about the further financing of INMOS. On 2 July The Guardian stated:An American share flotation for Britain's state-owned microchip company Inmos is now firmly on the cards".According to The Guardian, a three-man team of merchant bankers, acting as the company's advisers, had returned after talks at the American headquarters in Colorado Springs. The Guardian reporters are usually accurate and knowledgeable on these matters. They say that, following the American discussions, a three-stage method would begin with the placing of a stake with a range of British financial institutions. The second stage would be an offer of shares to the general public in this country, and the third stage would be an offer on the American stock market.
One has to ask what would happen if those three options failed. Do the Government wish to keep majority British ownership? Are they prepared to see a slow, or perhaps even a quick, death? Are they prepared to stop—even at this late stage — the taking over of most of the production from Colorado Springs? We read that all that production is to come to Newport.
We are entitled to hear the answers to those questions. We are also justified in asking why the Government are so dogmatic in refusing to provide further public funds for such a successful enterprise, when the market is being so weak-kneed about it.
Would the Government permit a quick, cheap sale to someone in another country? Such a deal would be obnoxious to me and to my hon. Friends.
I should like some clarification on the question of a second United Kingdom production plant. I realise that such an expansion would depend on demand for the product, but, from the beginning, it was expected that there would be a second unit. That was confirmed in July 1980 by the then Secretary of State for Industry, the right hon. Member for Leeds, North-East (Sir K. Joseph). As far as I am aware, production targets have not been lowered, and the expected profit next year suggests that progress is being maintained. If one adds to that the forecast of an end to the world recession, it is reasonable to assume that the second factory will be built.
I therefore reiterate the strongest possible request that full consideration be given to the northern region for the location of the second unit. When the first factory went to Wales and the headquarters went to Bristol, considerable surprise was expressed by many people who had automatically assumed that they would go to a special development area. I believe that the next factory must go to a special development area, and the claims of the northern region must rate very highly. We have the highest unemployment in the United Kingdom, with the exception of Northern Ireland; a work force that is amenable to training; a virtually strike-free record; some of the finest educational institutions in the country, including two universities and three polytechnics; three new towns; and something that seems to be of particular importance these days—a high standard of executive housing.
Perhaps I should say that about three years ago, on behalf of the northern group of Labour Members of Parliament, I corresponded with the British director of the company, Mr. Ian Barron, on this matter when, I think through something of a misunderstanding, we crossed swords about the north being a suitable location for an INMOS factory. I do not think, however, that anyone would deny the strong claim that the region has for such a production unit.
154 In one letter that I received from Mr. Barron, he said:Hopefully, when we have established a viable operation in the United Kingdom and have an effective management learn, it will be possible for us to be more adventurous in our decision on the location of future facilities.That was written in 1980, and the progress made by INMOS speaks for itself, so there should be no particular difficulty in putting the northern region in the front rank of contenders for the next factory. With so much public money invested in the company, no doubt the Minister will confirm that the Government will have an effective voice when the location of the unit is considered.
There is a further reason why the northern region should be considered. Our problems are largely, although not entirely, caused by the run-down of the old traditional industries such as coal mining, steel making and shipbuilding. The amount of unemployment in those industries has been exacerbated by the murderous policies of the present Government, and they, therefore, owe a special debt to the north to help in building up a more balanced economy for the region, so that it is not for ever plagued by this endemic problem of depending on the older industries.
I conclude by telling the Minister that any attempt to sell off INMOS or to reduce the public stake in the company will meet with the utmost resistance from the Opposition. It would not only be further proof of this Government's extremism but could well be the end of one of the country's most valuable assets. I look forward to some clear and unequivocal answers this evening, and an assurance that for once, at least, dogmatism will not prevail.
§ The Minister for Information Technology (Mr. Kenneth Baker)
I congratulate the hon. Member for Easington (Mr. Dormand) on securing this debate and choosing this subject. I know that since the INMOS company was set up, he has shown a keen interest in its progress and well being. I am sure that he will not mind me saying that, as he made clear in his concluding remarks, one of his reasons for being so interested in the company is that it might provide employment in the northeast. He sees a successful INMOS as a possible contributor towards jobs in the future. I share the hon. Gentleman's concern to try to stimulate more eletronic and technological development in that part of the country.
I am also glad to welcome to the debate the right hon. Member for Wakefield (Mr. Harrison), who is one of the renowned nightbirds of the House. I am glad that his eagle eye is on the debate. I also welcome my hon. Friend the Member for Newport, West (Mr. Robinson). He is one of the new Conservative Members and represents an area in which the main INMOS factory is sited.
It might be helpful if I review the history of the INMOS company since it was set up in 1978. The National Enterprise Board, supported by the then Labour Government, agreed to provide backing for INMOS. The NEB agreed to take a majority stake of some 72.5 per cent. in the new venture and to put up some £50 million in equity in two tranches of £25 million each. INMOS was forecast to provide about 4,000 jobs by the mid-1980s, save £20 million a year in imports and to generate £100 million a year in exports.
At that time, when the first tranche of £25 million was provided, it was planned to begin design, development and 155 initial production in the United States and to transfer that technology to the United Kingdom where major production would eventually be undertaken.
This Government would never have let INMOS be set up in that way, important though the semi-conductor industry is for our future electronics and information technology business. We would have insisted on the involvement of majority private sector finance at the outset, whether in the form of industrial or institutional investors. Since coming to power in May 1979, the Government's policy towards first the NEB, and now the British Technology Group, has been that it should seek to bring private sector funds into its investments, especially a major subsidiary such as INMOS, at the earliest practicable opportunity. A company the size of INMOS needs the confidence and disciplines of the market place if it is to succeed as it should. I do not believe that that is being dogmatic or doctrinaire.
It was against that background that the new board of the NEB reviewed INMOS in 1980 before considering whether to support the request that the Government should provide the second tranche of £25 million, most of which would be spent on the construction of a United Kingdom manufacturing plant. It was clear that new investors could not be found at that stage in the company's development. At the same time, the review concluded that INMOS had the potential to play a leading role in the semiconductor industry. The NEB recommended therefore that the second £25 million be made available provided the United Kingdom manufacturing plant was located in south Wales and that plans for a second United Kingdom production plant involved location in an assisted area. That remains the case, although it is clear that the company is still some way from contemplating a further production facility.
When that decision had been taken in July 1980, INMOS then began a major build-up of its activities with the American plan at Colorado Springs designing, testing and manufacturing the first product — the 16K static RAM. Meanwhile construction of the United Kingdom factory at Newport in south Wales was begun.
By the end of 1982, substantial technical progress had been made but, partly because of the nature of the way in which the company had been set up, there was also a slippage in meeting commercial targets, even though sales were by then running at £2 million per month. It had always been envisaged that the company would need additional capital beyond the £50 million to support its expansion.
It was clear that private funds would not be available until the Newport facility was fully on stream and the company had reached break-even. The British Technology Group and its and the company's financial advisers were confident that INMOS was moving towards a position of overall profitability and that further support from public funds was necessary only for a limited period. Therefore, while we would have preferred to see all further funding coming from the private sector, my right hon. Friend the then Secretary of State agreed that the National Enterprise Board, as part of the British Technology Group, should provide a further £15 million of equity funding, bringing its equity contribution to a total of £65 million. At the same time, the BTG appointed a new chairman of INMOS, Sir Malcolm Wilcox, with the specific task of meeting the 156 company's further requirements for funding from private sources and thereby diluting the NEB's holding in the company.
So much for the history. Where does the company stand at present? That is what new investors will want to satisfy themselves about. I think that it has a good story to tell, with a first-rate design team, impressive state of the art facilities and a range of memory products on one side, and of some impressive new microprocessor products on the other.
By the end of 1982, INMOS' first product, the 16K static RAM, had captured more than 70 per cent. of the market for that fairly specialised type of chip. Its market success was such that one of the major United States semiconductors companies, Intel, dropped manufacture of its own product and chose to supply the INMOS chip instead. Also by the end of last year test samples of the new 64K RAM chip had been shipped to potential customers and had been well received. The company now has a healthy order book. Further memory products are planned for introduction in the future.
On the microprocessor side, the research and development facility of Bristol is working on the new transputer—that is the microprocessor on one chip—and has developed a new programming language for it called "occam". This is likely to be one of the significant areas of future development in the so-called "fifth generation" systems. Indeed, INMOS could have an important role in the research and development work in the Alvey programme which was recently set up in my Department. The unit at Bristol has also developed an integrated set of computer-based design aids for very large scale integrated circuits, which has been recognised as outstanding by independent consultants and has market opportunities outside the company.
With regard to trading performance, INMOS is still in a start-up position. That is why we have had to be patient in attracting new investors. The original 1978 figures for sales, profits and employment were wildly optimistic, and when those were looked at again in 1980 they were revised downwards to more realistic levels. While there have been substantial start-up losses, the amounts involved include the large investment in research and development that the company has incurred. But sales have eventually taken off, rising from £2 million in 1981 to £14 million last year, at a time when the world market for semiconductor products was depressed. The estimates for this year are higher. That situation is now showing signs of improvement.
Prices are beginning to harden, production is beginning to build up in the United Kingdom, and the balance of employment, which has been significantly towards the United States end in the early stages, is now swinging towards the United Kingdom. All this bodes well for the future of INMOS. Although 1983 will also show a trading loss, the company should be moving into profit by the final quarter of this year.
My hon. Friend the Member for Newport, West may be interested to know about the employment plans and prospects at the factory in his constituency. The 1982 INMOS corporate plan, although it showed a slippage of a year in employment targets, forecasts that, while about 370 people will be employed at the end of April 1983, this will rise to over 500 in August, with a target of 750 being reached towards the end of this year.
157 The prospects of INMOS taking advantage of the upturn in the integrated circuit market look good, and especially promising is the feasibility of our objective of moving INMOS from the public sector to its rightful place in the private sector.
I can assure the hon. Member for Easington that my right hon. and hon. Friends are concerned to see the technology, for which the taxpayer has paid, properly transferred to the country, and for the company to contribute to the regeneration of the country's industrial base. The taxpayer has taken a considerable risk and made a large investment in INMOS, and it is right, now that the company is moving in the right direction, that the taxpayer should begin to see the fruits of that investment.
I firmly believe that the time is now ripe for the private sector to become involved in INMOS. I know that potential investors on both sides of the Atlantic have shown an interest, although, perhaps not unnaturally, there has been more on the American side. What is important is that the manufacturing operation that has now started in Newport should continue, and I hope that British investors will show the same interest in the company as is now being reported in the Wall Street Journal. All this indicates a future for INMOS. At a time when the semiconductor market is firming up, and while good design and manufacturing facilities are in short supply, INMOS is in a fortunate position and is potentially a very attractive investment.
The semiconductor industry is, of course, highly capital-intensive. The entry price is higher now in real terms than when INMOS was set up in 1978. The production know-how required is almost as significant as the design skills themselves, and the manufacturing technology is moving at a pace to rival semiconductor development.
All the companies in the industry are discovering that to remain competitive they are constantly having to improve and update their manufacturing and testing processes. This equipment is extremely expensive; so expensive that most companies have moved into other activities to spread the risk. Several large manufacturers such as Motorola now produce other manufacturers' chips 158 as a "second source" supplier. Companies such as Texas Instruments and Fujitsu in Japan have vertically integrated businesses so that they produce computer equipment that uses the semiconductors. Perhaps the most significant move of all took place last year when IBM, the largest computer manufacturer in the world and a significant chip producer in its own right, took a significant interest in Intel, which is arguably the most important independent semiconductor manufacturer in the world.
This is the type of environment in which INMOS will have to live. It is one in which there is a large and continuing need for capital, and one in which the competitors are themselves very large, many with links with other companies with complementary interests. It is clear therefore that if INMOS is to become the significant force that we all hope it will be, it will have to get into this competitive environment and win through on its own merits.
It would be completely wrong to leave the company with a majority stake held by the public sector. We would then be faced by continuing and probably ever-increasing demands for further funds while at the same time seeing the company hampered in its efforts to enter into arrangements with potential partners. Such potential partners would regard the position of public ownership with some suspicion. No, I want to see INMOS develop, if not into one of the giants of the industry, then certainly into a significant force keeping this country in the forefront of chip technology. In order to do that it must apply its technical strengths in a way that keeps in step with the market. The closer the involvement of the private sector, the more powerful the commercial discipline on INMOS to succeed. I believe the time is right for this to begin to happen. With the commitment that the Government and the taxpayer have shown, the company has responded with well-designed products, increasing sales and exciting prospects. It is now for the private sector to rise to the challenge and to push INMOS through to the success it deserves.
§ Question put and agreed to.
§ Adjourned accordingly at nineteen minutes to Two o' clock.