Examination of Witnesses (Questions 160
- 179)
WEDNESDAY 2 JULY 2008
DR RICHARD
PRICE, MR
STUART EVANS
AND DR
KEITH ROLLINS
Q160 Chairman: But is that the outcome?
Dr Rollins: It is not the outcome
either, no. Can I apologise for my slightly casual dress this
morning, having returned from Korea and Japan yesterday for 10
days, it was going to help me get through this morning I think,
so just bear with me. I think it is important to understand that
from a business development perspective this is very much a global
game, so you need to position yourselves with different kinds
of customers with different needs. Interacting with a major Asian
multi-national requires a different approach to interacting with
a start-up at a Cambridge science park. We have made an investment
over the last five to six years to work with those companies to
try to develop material sets as an enabler to this industry, because
clearly without a piece of plastic of the right quality and specification,
et cetera, you are not going to develop and build a plastic electronics
industry. In terms of the R&D investment that our business
has been prepared to make, we have taken a pretty open approach
to the way in which we work with those companies and, of course,
what we have tried to do is to pick winners. I am delighted to
say we started to work with Plastic Logic six or seven years ago.
That is a good example of a winner and there is no shortcut to
that; you have to develop those relationships and work with customers
and understand their technology and translate that into a product
which can allow them to grow their business. Our job—profitably
of course—is to allow those companies to grow their business
for the future.
Q161 Mr Boswell: I am interested,
as we have heard this morning, in the interplay between intellectual
property and the various players who may or may not own that who
claim it and other players who may want to exploit it. Clearly
there is an interest, and you have just touched on this, in having
a fairly open structure but on the other hand you are going to
have bits that you want to keep to yourself. Conversely multi-nationals
may, to follow the Chairman's formulation, want to collar not
just the manufacturing and take things away to manufacture but
collar the IP which then becomes no longer available in the UK.
It sounded from the contributions that you three gentlemen have
made so far that you were reasonably relaxed about this rather
mixed economy at the moment. Is that the message we should be
getting from you? Would any attempt, as it were, to intervene
by anybody, whether it be TSB, the Government, or otherwise, destabilise
and do more harm than good?
Dr Rollins: Maybe just to qualify
my comment about the openness, that was more in terms of our willingness
to operate in different parts of the value chain to the ones we
would normally occupy, because in this very immature industry
it is very difficult to get established companies who perhaps
have not recognised the opportunity here to invest and commit
resources to develop the industry, so we have worked further down
the chain, and part of the investment that we made in CPI four
years ago was a strategy to allow us to do that. My comment on
intellectual property is of course, like any technology developing
company, IP is extraordinarily important to us. It is one of the
critical reasons why people like 3M and Merck have a very good
sustainability model in the LCD space, and clearly that is a model
that any materials company will seek to develop.
Mr Evans: As to IP arrangements
between Plastic Logic and DuPont Teijin Films, that is dealt with
by we buy his substrate and pay him money, and that is a straightforward
kind of arrangement. We are all conscious of the need for a very
broad ecosystem here because this is a big task and whether it
is in the UK or other countries I think the public purse continues
to play an important role in enabling some of that and if the
UK chooses to do less of it then others then it will eventually
suffer the consequences. Short term I think we are funding R&D
research about right. Then there is the getting into manufacture
which the PETeC guys and others are talking about and then there
are pilot projects that take what comes out of the factories in
Dresden and other places and put it on the desks of people like
you guys.
Q162 Chairman: Richard, is not the
very purpose of your existence to encourage companies to actually
go into the pockets of larger players?
Dr Price: In terms of university
spin-outs—
Q163 Chairman: Is that not what you
do as your job? How do you measure success?
Dr Price: You measure success
by creating value and whether that is through an exit of a trade
sale to a large global player, through an IPO or through generating
sustainable revenues, there is a range of different options. When
you go down the path of taking venture capital you are more constrained
in your choices there but it does not necessarily mean that you
are going to be acquired by a Samsung or Hitachi. Because of the
possibilities that were touched on earlier about being able to
enter into manufacturing or create various parts of the value
chain within the UK, then it is not necessarily the case that
this would go overseas. There are possibilities that UK companies
over time could be acquiring each other.
Q164 Dr Blackman-Woods: Both Nano
e-Print and Plastic Logic were spin-out companies based on venture
capital. Did you look at any other funding possibilities, for
example University Challenge funds? Was there anything else there
or did you not look?
Mr Evans: For Plastic Logic our
ambition was always such that the level of funding that it would
take would be well beyond what was available initially from those
kinds of resources. To hark back to what David King said, we are
halfway through our journey. We have raised hundreds of millions
of dollars and one of the key things to avoid the company being
acquired is that public markets are opened. Some of our investors
will eventually want to sell their shares and that is entirely
reasonable but we do not want that to be a thing that forces the
sale of the company. It is really important that whether it is
on NASDAQ in New York or on AIM in London that there is an ability
for some of the investors in Plastic Logic to make money at that
stage. I tell everybody that an exit is not the end. Bill Gates
is so rich because in the IPO of Microsoft he did not sell any
shares, and that is the ambition that we have at Plastic Logic.
Dr Price: We are at a much earlier
stage in our journey having just raised $1 million rather than
several hundred.
Mr Evans: That is the hardest!
Dr Price: It is the hardest and
of course we looked at a range of different options for funding.
It is very difficult to get that funding particularly at the early
stage when essentially, because of the nature of this industry,
there is still an extremely high level of risk, it is still essentially
in a research phase, albeit industrial research, and looking at
other sources of funding other than equity investment was almost
impossible at the time.
Q165 Dr Blackman-Woods: Richard,
you mentioned earlier that you were getting funding from Technology
Strategy Board. How important is that to your company?
Dr Price: It is incredibly important
for several reasons. Firstly, it brings together consortia that
would not necessarily have come together unless there was government
support to share that risk. Secondly, it helps us in terms of
our cash flow and enables us to further develop before we have
to go back to the market for more investment. It also helps us
build relationships with some of the knowledge transfer networks
and to grow organically some of our networks within industry.
Q166 Mr Boswell: Just a little point,
if I may, following this. Are you satisfied that there is adequate
capacity in the UK for appraising these kinds of applications
for funding for venture capital? I imagine for example if a small
company were to go to a clearing bank they might have some difficulty
in having a dialogue with them. At your sort of level and in your
experience, is there somebody who at least knows what you are
driving at and can give you if not necessarily the funding you
require at least a sensible discussion about whether it is merited
or could be considered?
Mr Evans: If I were to respond
to that I think it is entirely unreasonable to expect clearing
banks to be investing in plastic electronics at this stage. We
have generally found that dialogues both with grant-making bodies
like TSB or investors have been very reasonable; and I would want
to pay tribute. In the UK, whether it was the DTI programmes or
the current wave of TSB programmes, they are massively easier
to work with than the Framework projects in Europe. With DuPont
we have done a couple of projects and there have been three players
and we were all complementary. We were in three Framework Six
projects and each consortium had 20 players and the bureaucratic
overhead was a nightmare, so there has been very much more successful
state funding from these things here in the UK.
Q167 Dr Blackman-Woods: So you would
conclude that the TSB is doing something that is quite unique,
it is not duplicating something that is being done somewhere else
in the UK?
Dr Price: Absolutely. I would
echo Stuart's comments about European projects. They frightened
the life out of us, quite frankly, with the complexity of the
projects. They are just not appropriate for what we want at this
stage.
Q168 Dr Blackman-Woods: Would a reformed
SBRI programme be helpful to spin-out companies in your sector?
Mr Evans: Absolutely yes. I think
there are two problems there. One is that this has been a promise
that has been around for many years and those of us in the entrepreneurial
community are extraordinarily sceptical about whether anything
will happen; we await with interest. I think they play a really
important role in enabling pilot projects and because they provide
100% funding, which is completely different to any other regime,
they permit little companies like ours and Nano e-Print to do
some different kinds of stuff, so it is a very welcome initiative
and I do hope it progresses.
Dr Price: If you look at the difference
between, say, CDT in the UK and the Universal Display Corporation
in the States, the number of projects that UDC got was phenomenal
from the US Government. Despite the success of CDT, I think they
could have done much better by having additional support.
Q169 Dr Turner: Stuart, Plastic Logic
has gone down the manufacturing route as a business model rather
than developing IP and licensing it. Why is it that you have done
that? What is your rationale? Do you see that as a greater potential
in profit in the future?
Mr Evans: Absolutely yes. The
journey we have been on is quite interesting. When we started
the company we did view IP licensing as an attractive business
model, but one of the things that we realised as we developed
the company is that we were going to be first and we concluded
that it was much better for us to be first because it was a very
attractive profit opportunity, a very attractive opportunity to
deliver great value and in our field—and you say this carefully—it
is only £100 million to build a factory whereas if it is
a 300mm silicon fab or Gen 8 Fab in Asia it is billions and billions
of dollars. Writ large the manufacturing story is much more optimistic
in the sector than you might imagine because you will have lots
of small facilities being very successful and competitive and
there is bound to be some in the UK if we wanted to; we only have
to try.
Q170 Dr Turner: Richard, what model
is your company going to adopt? Are you going to go to licensing
or manufacturing? Do you think that one of the factors in it is
the attitude of venture capital funders? Are they more like likely
to be interested in funding an IP model or a licensing model or
a manufacturing model?
Dr Price: Like Stuart, we started
off with a licensing hypothesis, but we have quickly moved away
from that, partly because it is a very difficult model to implement
successfully. There are few examples of it. ARM is the classically
cited example of a successful licensing model but they spend enormous
amounts of money on their business development activities, so
it is very easy to underplay licensing and to assume that it is
straightforward. It actually involves incredible amounts of investment
and to have licensees that are committed to your technology and
implementing that and manufacturing that for you to get a return
on your investment. The model would be to develop products or
product components and that is much more attractive to the VC
market. They prefer to invest in products and something where
there is more control over the risk than through a licensing model.
Q171 Dr Turner: Do you anticipate
doing your manufacturing in the UK or elsewhere?
Dr Price: At this stage it is
too early to say. We would very much hope to do it in the UK.
What has been refreshing is that we have a slightly different
technology to Stuart's company and we have been able to work with
existing players in the UK within the holographic industry. It
has been encouraging that there is such a wealth of expertise
in that field within the UK and also within parts of Europe, so
I would hope that very strongly we could do that within the UK
or, if not, the UK within Europe.
Q172 Dr Iddon: Keith, companies such
as Merck Liquid Crystals, Chiso or Corning with the glass substrates
have been highly successful in the LCD sector. Should we in the
UK follow a similar pattern to that in this field that we are
talking about this morning? In other words, are we going to be
enablers or are we going to be producing devices?
Dr Rollins: I think the attractive
thing about the space at the moment, because it is so early, is
that all of those options are open. If you look at the materials
history in the UK, it would be astonishing if a range of companies
did not participate in just the way that Merck have done in LCD
but in plastic electronics, so develop the technology, develop
products associated with that, and either export or manufacture
domestically closer to where device manufacture is taking place.
You would be surprised if that did not happen. Almost certainly
the technology development and IP licensing piece is going to
happen, again traditionally a UK strength. It would be very surprising
if that did not happen. I have always felt, as I know Stuart does,
that there is an opportunity for the UK to contemplate being a
device manufacturing community. That race is not yet won and the
opportunity therefore still exists. I think the UK needs to have
a very clear strategic intent in this area if it wants to occupy
that place in the future. I often think about examples like the
German photovoltaic industry—which is a very interesting
story to reflect on—which in very quick terms, to go back
in history 20 or 25 years ago, the German Government introduced
a set of tariff schemes to encourage the adoption of photovoltaics.
Germany would not be the first country necessarily to think about
building a major PV centre but they did. The German PV industry
today is the largest adopting country world-wide for photovoltaic
devoices. It is an industry that employs half a million people
and it is a multi-billion euro industry. That is the kind of prize
that if we are ambitious and have a real strategic aim in this
area is the big opportunity. The other stuff is going to happen,
I think, but I think that is the big prize.
Q173 Dr Iddon: Stuart, we know full
well the hows and whys of you ending up of all the sites you looked
at, including one in South Wales, in Dresden—there was a
can-do attitude there and the skills were there in that fine city—but
do you think you will be able to use your products for assembly
in Europe, in Germany in the Dresden area, or will you also be
an enabling technology when you are manufacturing?
Mr Evans: We are intending to
have Plastic Logic be a manufacturer of electronic readers so
what we will make in the factory will be display modules that
will be assembled into complete readers probably with a partner
in Europe, but that is not finally determined, and is by and large
a commodity purchase, with not great value added. I think it is
a more interesting question where the second factory might go.
Will it go next door to the one in Dresden; will it go somewhere
in Asia; or might it come to the UK? I do not think the answer
to that is clear, but it is not impossible it could come to the
UK, I would have said.
Q174 Dr Iddon: It seems to me that
the Asians have cornered final product manufacture whether it
be a display screen in a satnav or a mobile telephone or whatever,
and they are very reluctant to install manufacturing capacity
in the West. Is that a big problem in this area?
Mr Evans: What you see there is
maybe slightly misleading. It is very interesting to see the way,
for example, the flat panel TV companies are doing more and more
final assembly in Eastern Europe and that is the net result of
having anchors in Asia. They have got so much invested in the
gen eight fabs that they really cannot do anything about that
but the other bits of value added they want to do close to the
customer. So in the context of Plastic Logic in Dresden we are
making the equivalent of what they make in the Gen 8 Fabs in Asia
and the final assembly can take place in a wide range of different
places, so I do not accept at all that it is a thing that cannot
be done to our benefit. I think the product design of course is
very interesting. We sometimes talk about Plastic Logic devices
wanting to be like iPods but of course the designer of the iPod
is a Brit. Jonathan Ive is the chief designer at Apple and he
is a Brit. Whether you do it in California or whether you do it
in the UK or Europe, if you looked at the mobile phone business,
companies like Nokia make one million mobile phones a day and
they are a European company.
Q175 Dr Iddon: When Keith Rollins
told the Committee recently that you can develop technology in
the UK and Europe generally but you have to manufacture in Asia;
you would say he is wrong?
Mr Evans: Absolutely and I do
not know that he said that, did you?
Dr Rollins: I do not think I did
say that. I think what I said was this area offers the opportunity
to break that paradigm.
Mr Evans: The point is you will
manufacture everywhere because the product will be used everywhere
and you are not forced to have a small number of giant plants.
All we have to do is want to and try hard and we can have plastic
electronics manufacture in the UK.
Q176 Mr Boswell: And it is worth
being close to the market
Mr Evans: Absolutely yes.
Q177 Dr Iddon: I am glad we have
qualified Keith's earlier comment.
Dr Rollins: I think the other
comment I would make to that—because in the first session
this morning there was a lot of discussion about barriers to implementation
is—I think one of the great advantages that the Asian companies
have because of the history of almost 20 years now of course is
that in Tokyo, in Seoul, in Taipei, in a 30-minute taxi ride you
can jump into the headquarters of the R&D centres for major
electronic companies who are the supply chain champions for those
industries. The US has something very similar; it is called the
United States defense industry. Two years ago when they detected
a gap in their capability around flexible displays, they threw,
give or take, $50 million at the University of Arizona and set
up a flexible displays early stage manufacturing facility. Again
at the top of the pyramid there is an organisation that drives
adoption and drives implementation of these technologies. I and
a number of others in the submissions that we made to the Committee
did make the point that, as Chris said earlier, the major electronics
industry in the UK has gone but there is an incredibly important
role that the UK Government can play in facilitating that domestic
demand. I think that is a really important thing for us to think
about and to consider if there are any opportunities to make that
happen because if the UK Government or some procurement body,
or whatever it is going to be, can sit at the top of that pyramid
the supply chain will begin to assemble beneath that.
Mr Evans: If I could hark back
to the theme you have asked about a couple of times which is the
decision not to have this Managed Programme. I do not think that
really matters in terms of the money because, by and large, government
support financially has been broadly what was anticipated in the
managed programme, but it is a missed opportunity to bring together
the industry to lead itself into the future. I do not think that
the PETeC guys are quite engaged with the stakeholder community
in the way that would be ideal. You have got a very powerful cluster
around Cambridge. We work quite closely together and Chris Williams
has done a great job at building the UKDL into something cohesive,
but there is a step further to go I think, and that would be a
very desirable outcome, and I think if we had had the managed
programme where essentially there had been a commitment to spend
the money, which is being spent anyway, industry would have had
more control over that and I think that would have been very helpful.
Q178 Ian Stewart: My interest is
around skills and recruitment so the first question is are there
skills shortages in relation to this in this work? If there are
skills shortages, what can be done about that? Secondly, have
you got problems recruiting in the industry? Do you recruit internationally
and would you prefer local skilled workers?
Mr Evans: We have got the most
people so maybe I could respond to that. When we had nine employees,
six were foreign; when we had 20 employees, we eight nationalities.
We thought that was fantastic. We thought that was really important
but now we are nearly 100 people in Cambridge and I should think
70% are British. I would say, broadly speaking, the science skills—and
it not easy—you can do because we have got such great universities
producing great people. Engineers, the guys who know about what
Chris erroneously described as the "boring bits" (and
I think that is part of the problem; they are not boring for the
right kind of people) we have hired people from Intel who are
great semiconductor engineers but who know nothing about plastic
electronics, and of course that is inevitable because there is
no industry. I think it would be very interesting to see an emergence
of a plastic electronics conversion course at some kind of UK
institution that could take guys who were basically electronics
engineers in yesterday's technology and make them electronic engineers
in tomorrow's technology. There is a very nice precedent in the
UK displaced masters programme which does something like that
and I think that would be very, very helpful.
Q179 Ian Stewart: Can I just press
you on that because that would be the next question. Would you
prefer then graduates who had specific skills in plastic electronics
or would you prefer graduates with more generalist skills?
Mr Evans: For us we want people
who are graduates with five, six, 10 years' experience, so it
is not so much what their first degree was, although obviously
has to be some deeply technical degree, but when we hire them
at age 28 or 30, we want them to have spent their time in the
right industrial environment. We will do our bit to train them
but that is where we would like some help.
Dr Price: Stuart is right that
in terms of the science for the core research there are those
skills available although we need to keep investing in those.
I know certainly the University of Durham are putting together
a doctoral training programme that they are helping to get funded
for the next 10 years that would generate a continuing pipeline,
in addition to the Cavendish pipeline that is very excellent at
producing scientists. Alongside that, as we transition from the
research into the development and manufacture, those skills are
completely different to the skills you need to understand the
fundamentals of plastic electronics and that is really where there
is a gap at the moment.
Dr Rollins: Obviously our company
is a little bit different to Richard's and Stuart's in terms of
we will recruit from traditional material science, polymer chemistry,
physics and then a variety of brands of engineers, and we recruit
generally from the UK, and that suits our needs very well, quite
honestly. In answering the broader skills question, again it is
important to think about what is the end point in this game; what
is the model within UK plc because that will dictate the skills
set that is required of course. So if the end point in terms of
UK plc is PETeC-type scale, that dictates a certain set of skills
sets and so on. It is always going to be very multi-disciplinary
for sure and maybe does need to be multi-national as well. If
you are going to get a German PV industry in 10 years' time, then
that is a large-scale manufacturing mind-set. It is a whole different
skills set to the one that gets technology to a PETeC-type scale.
I think you have got to answer that question before you really
lay out the strategy that says what your people development part
is to satisfy that need.
Dr Price: Going back to Stuart's
point about their first nine employees, out of our first six we
had four different nationalities, so it is a similar pattern.
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