Technology at the Frontier: Quantum

Australia has unknowingly ridden its luck to have a quantum ecosystem this intriguing, but luck doesn't last, and Australia needs to recognise it.

In 2024, Australia invested A$940 million in publicly funded equity and loans into PsiQuantum¹; the agreed planned Brisbane facility is a year behind schedule at best. The move showed Australian leaders overlooking an already strong domestic quantum base in favour of what they were convinced was a sure bet. With quantum as a stated technology area of interest both domestically and in AUKUS, the PsiQuantum deal compounds opportunity costs as well as financial cost.

Australia’s Approach

Quantum technology is not monolithic, but a family of technologies that employ mechanics of subatomic particles—primarily entanglement and superposition²—to achieve information communication beyond conventional computing infrastructure and languages. We can place current quantum technologies into three broad categories:

1. quantum sensing—the extreme sensitivity of quantum states is used to measure phenomena such as gravity, magnetic fields, time and acceleration with beyond-conventional precision.

2. quantum communications—expanding links and potential superposition at the subatomic level could be used to create cryptographic keys and communications channels that are theoretically unbreakable.

3. quantum computing—quantum mechanical states at the subatomic level are used in mass to perform calculations that take conventional computing orders of magnitude—potentially millennia—longer.

It’s reasonably safe to say that quantum sensing capabilities³ are the nearest to maturation and quantum communications closer to mass deployment than quantum computing. Quantum computing remains a contested zone with various approaches and structural architectures, even as some areas such as quantum simulation and quantum machine learning (QML)⁴ are being rolled out in early commercial forms.

Australia’s claim to quantum strength is not aspirational; it has a strong research portfolio built over 35 years and track history of university quantum research spinouts across varying aspects of quantum technology and approaches.

• Silicon Quantum Computing (SQC, UNSW-based) continues its leading research and engineering building silicon qubits at the atom-by-atom level, and has managed to build an end-to-end domestic value chain, sourcing its silicon from Silex Systems in New South Wales.

• Diraq (UNSW) is pursuing a more scalable route of quantum dot technology that can be fabricated with existing semiconductor foundries and workflows, trading immediate qubit quality for a more readily available manufacturing base.

• Q-CTRL (University of Sydney) builds quantum control software, reducing the errors induced by outside noise, and tackling one of quantum technologies’ biggest deployment issues.

• Quantum Brilliance (ANU) builds synthetic diamond-based quantum accelerators and nitrogen-vacancy centres within them to achieve qubits. That removes the need for cryogenic cooling. one of quantum’s biggest cost and deployment barriers, enabling a room-temperature proposition with wider integration potential.

• QuantX Labs (University of Adelaide) is the only company that builds warm-ytterbium-vapour clocks on a commercial scale in the world, achieving portable, scalable quantum clocks based off atomic clocks.

• Quintessence Labs (ANU) has developed elements of quantum encryption for use in cyber security, developing quantum random number generators and quantum key distribution with deployment on conventional fibre loops being actively extended.

• Other, smaller companies exist across Australia, for example, Nomad Atomics (atomic sensing in mining); Phasor Quantum (Positioning, Navigation and Timing (PNT) use cases); FeBI Technologies (healthcare); and Archer Materials (quantum chips).

In short, it is not the quantum technology ecosystem that is lacking; it is government’s willingness to back it.

What Australia is Actually Investing In

Australia’s efforts to scale its domestic ecosystem for quantum technology is split along three axes:

1. acquire capability from overseas (e.g. the 2024 PsiQuantum deal);

2. support individual startups and companies; and,

3. AUKUS Pillar II.

That’s not unusual—especially given the still-maturing nature of quantum technology and its surrounding ecosystem—but the balance of the split is problematic.

The combined A$940 million PsiQuantum package, principally to build a utility-scale, fault-tolerant quantum computer in a custom facility in Brisbane, is by a large margin, the largest single investment into any quantum-focused company by Australia—or in any commercial entity in a category of emerging/deep tech. It alone nearly matches the National Reconstruction Fund’s A$1 billion critical technologies allocation, which is meant to stretch across AI, robotics, quantum and advanced materials.

The two other main sources of federal funding support are the National Reconstruction Fund (NRF) and Main Sequence—the government’s deep tech, patient capital venture fund. Main Sequence prioritises deep tech between the startup funding rounds of Seed through to Series B.

Thereafter, the NRF is meant to fill the public funding gap. But given its mandate to generate commercial returns above the government bond rate, its support for deep tech has so far been comparatively timid. The NRF’s recent investment of A$20 million into SQC pales in comparison to the PsiQuantum commitment.

Australian state governments have their own vehicles, all relatively small, focusing more on the early startup stages.

What Australia has, and what it doesn’t

Because of the relative immaturity of the field—competing physical architectures are being developed and scientific approaches tested—it’s impossible to predict an ultimate ‘winning’ hardware or production method or scale. Thus ‘value’ needs to be understood at company and national levels. At the company level, value is a defensible product that generates consistent and ideally compounding returns; benefits to local economies arrive as spillovers. At the national level, value arrives from the retention and application of sovereign capability and maximisation on both the national and international stage.

Both aspects of value capture are consistent within Mazzucato’s framework on where economic value accrues—see our earlier assessment on AI and data centres. Extractive companies, or nations, will derive value from the ecosystem, often enabling them to build a competitive moat, but not contribute to the further creation of economic value⁵. Compounding value is found first and foremost—as with all technology—with the actors that own the proprietary IP. Despite quantum technologies being nascent, the realisation of value changes from the physical stack to the broader technological context.

Genuinely new areas of technology require new base components, so we need to consider the evident hardware stack. Australia still doesn’t have anywhere near the production scale of countries such as the United States and China, and so several Australian quantum companies manufacture active elements of their respective IP in-house.

The Physical/Hardware Stack

The breakdown suggests that Australia stands in comparatively good stead—while the technology remains in research and development, rather than scaling or commercial application—especially when it comes to domestic quantum technology IP, accepting some reliance on the side for less critical or more easily attainable hardware. Beyond the R&D and prototyping stage, Australia’s ability to scale will likely rely on more overseas sourcing, and its ability to capture value will be stressed.

The core of value capture lies in the reliable, sustained manufacture of qubits, regardless of method, and the protection of IP for national sovereignty. The qubits remain the most difficult hardware build element, cryogenic systems remain consistently expensive, and other offshore hardware dependencies need time, money and effort.

There is no defined, reliable pathway by Australian governments to address such gaps⁶. Thus Australian national value capture remains challenged. To retain that value, government needs to step up, at least while the technology is maturing.

The Broader Technology Stack

The global quantum ecosystem still largely benefits from shared R&D information rather than locking itself into competitive hyper-scaling (though signals of that phenomenon are evident). Australia remains vulnerable to two other key points of wider value.

First, if Australia remains dependent on US tech giants at the software layer for enterprise (large scale) and niche (sensitive or classified) use cases, it will effectively be renting the digital interface for its own ecosystem, even while sovereignty of the hardware might remain strong. That’s critical as the digital layer is fundamental to growing commercialisation potential amongst a wider audience of buyers and users.

Second, there remains the structural vulnerability at the standard-setting layer. If Australia remains a passive rule-taker in quantum, where it has genuine domestic strengths, it is likely ceding the highest tier of value creation: the ability to set the terms of trade. Australia would be relegated to being an R&D source for quantum breakthroughs while having the strategic, commercial and policy picture dictated to it by foreign powers.

The Geopolitical Dimension

Using the Farrell and Newman’s ‘weaponised Interdependence’ framework⁷, nodes in the global ecosystem—subordinate nations—are at an asymmetric disadvantage to entities that have greater leverage over chokepoints of economic, intelligence or legislative balance. That is, the global quantum ecosystem itself does not present a threat, but how Australia and its allies work to develop shared quantum capabilities may.

So while AUKUS offers an opportunity for quantum technology, Australia risks being relegated to a node within AUKUS. While the United States lifted most of its ITAR requirements for its AUKUS partners, it maintains strict ITAR controls in some areas. The Excluded Technologies List (ETL) was excluded from the AUKUS ITAR adjustments, and maintains a broad scope, from manufacturing know-how and a wide range technical data to more obvious ELT candidates like F-22s and cluster munitions. It isn’t difficult to envisage how AUKUS projects more involved with US intelligence or technical build—such as quantum—could easily fall into ELT categorisation or become ‘ITAR contaminated’⁸.

Quantum technology related to defence capabilities would likely fit right into such definitions, especially as the US State Department proposed to revise—and expand—ITAR terms ‘related to defense services’⁹. There remains a significant chance that Australian quantum products and capabilities developed alongside US partners may either become subject to US export controls or that the United States quietly subsumes these companies into its quantum ecosystem—and out of Australia’s.

Nor is the threat only from the US side of this potential tug-of-war. As part of the retraction of most ITAR restrictions for AUKUS partners, the United State pushed Australia and the United Kingdom to adopt similar export controls. Consequently, Australian quantum companies are now facing limitations to their exports, partnerships, and commercialisation opportunities. That’s been exacerbated by the Australian government’s persistent reluctance to be a first customer for many domestic deep tech initiatives. Michael Biercuk of Q-CTRL notes that Australia’s willingness to add criminal penalties that exceed the US and UK positions is especially punitive, further dissuading local efforts.

Broader Risks

We can identify three further broad risks.

The Integration Gap: Adversaries are increasingly employing ‘Harvest Now/Store Now, Decrypt Later’ (HNDL/SNDL) attacks, which collect encrypted material in anticipation of quantum computing breaking encryption. If Australia doesn’t appreciate the scale of integration that quantum-secure networks require, Australia will—at best—be left with a patchwork of cyber security technologies in an increasingly digital dependent economy. That would present an ideal testbed for further malicious actors to train, attempt breakthroughs and adapt techniques.

The Policy Whiplash: While the 2023 National Quantum Strategy was largely agnostic towards investing in domestic companies, the 2023 Queensland Quantum and Advanced Technologies Strategy is far more specific. The Queensland strategy support the A$470 million invested by Queensland in PsiQuantum—aligned, in theory, with its Pillar 5—but seemingly at the cost of the other Pillars. The PsiQuantum deal, now behind schedule, represents considerable opportunity cost, hedging out other promising leads.

The C+ Series Cliff of Death: With Main Sequence targeting Seed to Series B funding rounds, as are state governments, and the NRF spotty at best, funding support in Australia is seemingly a dice roll. Worse still, domestic funding falls off a cliff at Series C—the point where companies look to rapidly expand manufacturing, scale supply chains and hire hundreds of engineers, including overseas talent.

There is no reliable hand-off of funding for deep tech companies to cross this ‘valley of death’, pushing Australian companies to either a too-early IPO or accept acquisition. Neither helps Australian critical technology development; the former forces short-term investor dividends, while the latter means Australia loses IP, and a sovereign technology, to US, European or Chinese purchasers. The NRF was meant to address this and scaling to commercialisation but has thus far failed to do so.

Trajectory and Policy Options

By funnelling unprecedented public capital into hosting overseas-developed hardware, the government risks starving Australian quantum innovators and creating the situation it is meant to avoid. On current settings, Australia stands to lose most of the innate talent—and consequential value—overseas and/or lose strategic control over the domestic talent that remains.

Australia still possesses the underlying technological base to rebalance this picture. But it is amongst policymakers and regulatory and funding decisions where the shift from passive indecisiveness to active positioning must happen.

1. Mandate Quantum-Safe Integration (Immediate): The Government should act as primary customer to domestic quantum companies working in areas of quantum cryptography. This will both create a domestic market, encourage foreign talent and help address wider integration concerns and shrink the window for cyber threats.

2. Ring-Fence NRF Capital (Immediate): Establish hard floors within the NRF’s $1 billion critical technologies allocation specifically for sovereign, domestically manufactured hardware (such as SQC’s atomic silicon and Quantum Brilliance’s synthetic diamonds) to counterbalance the PsiQuantum capital drain. A desire for flexibility is not the same as uncertainty, especially if a greater degree of coordination with patient capital arms—such as Main Sequence—is to be achieved.

3. Establish AUKUS IP Firewalls (Mid-Term): Strict, government-backed legal firewalls and dedicated advisory units for Australian startups engaging in AUKUS Pillar II challenges. While AUKUS has lowered ITAR boundaries, legal grey zones remain, and both Australia and the startups can be burned.

4. Enforce PsiQuantum Off-Ramps (Ongoing): While difficult, the A$940 million deal is a mix of funding methods, and while losing out on the potential of some equity within PsiQuantum may be a loss, the government must be willing to enforce the contract’s milestones and exercise break clauses if necessary.

Conclusion

Australia assumed that bringing in PsiQuantum in 2024 was crucial to scaling its domestic quantum ambitions but failed to appreciate the trade of sovereignty the deal carried and complexity of nurturing an ecosystem. And while the PsiQuantum deal has quietly stalled, Australia’s domestic quantum companies have outperformed expectations, rapidly expanding commercial use cases and deepening technological sophistication. Quantum stands to be one of Australia’s greatest compounding sources of value domestically but is poised between floundering through capital and opportunity starvation, or being lost or restricted altogether by foreign regulatory capture.

Australia’s innovators have made breakthroughs on limited support; but if government doesn’t support them, they’ll leave for a nation that does.

1. While PsiQuantum’s co-founders are Australian, the company is American and has attracted over US$2.3 billion in mixed forms of grants and equity investment with its valuation currently at around US$7 billion. In February this year, co-founder and now former CEO Jeremy O’Brien moved to Executive Chair and Victor Peng of Xilinx and AMD fame became PsiQuantum’s interim CEO.

2. For a useful primer for policy-makers, see Michael Biercuk and Richard Fontaine’s 2017 article on War on the Rocks.

3. Or a ‘Second Evolution’ in quantum sensors case; some forms of quantum sensing capabilities have been in use for decades, including atomic clocks and MRIs.

4. Quantum simulation mimics complex systems—eg, intricate chemical reactions and molecular structures—potentially overhauling pharmaceuticals, battery technology and advanced materials. Quantum machine learning uses quantum processors and their ability to harness gargantuan datasets to rapidly accelerate machine learning processes and AI development.

5. The difference between company-level and national-level value here is a matter of priorities. One such example is Breakthrough Victoria’s investment in Infleqtion—a US quantum company—that achieved a 5x return when Infleqtion debuted on the New York stock exchange, but does little to bring value to Australian quantum and less still for Australia’s sovereign capabilities.

6. For example, Quintessence Labs worked with overseas companies for the necessary hardware for consistent outcomes; the NRF contributed $15 million to its funding round last year, but no consistent program, route or support has been defined by government or procurement.

7. Check our previous piece on AI and data centres.

8. The United States will pursue and enforce ‘ITAR contamination’. Dr Reece Roth was sentenced to four years in prison in 2008, while Chi Mak was sentenced to 24 years in prison in 2007. In 2011 BAE Systems paid a settlement of US$79 million for infringement of ITAR requirements, while ITT Corporation paid US$100 million back in 2007.

9. This change was proposed on 29 July, 2024, just before the US government eased ITAR requirements for Australia and the UK. It was postponed at the time, but as of March 2026, the Proposed Rule is still pending.