Five years ago, chip-making plant Newport Wafer Fab (NWF) in southeast Wales was poised for expansion. Today it faces an uncertain future and potentially drawn-out legal proceedings between its new owners, Dutch semiconductor manufacturer Nexperia — owned by China's Wingtech — and the UK government, which has ordered Nexperia to sell most of its stake in NWF on national security grounds.
On 16 November, UK secretary of state for business, energy and industrial strategy Grant Shapps ordered Nexperia to sell its 86pc stake that it bought in July 2021, citing national security under the power granted by the National Security and Investment (NSI) Act. Nexperia has said it will launch an appeal against the ruling, which it claims is "legally wrong" and threatens the future of the plant and the jobs of more than 500 employees.
An increasingly hostile war of words is playing out in the media between various parties presenting wildly differing views of the role of NWF in the UK's semiconductor sector and in the development of next-generation technologies. But a question few seem to be asking is this: why was a successful fab like NWF vulnerable to a takeover in the first place? And why did it take nearly 18 months for the government to decide that the acquisition was a national security risk when the initial probe ordered by then prime minister Boris Johnson on 7 July 2021 was only supposed to take three months.
Wrong fab, wrong time?
The sale of Cambridge-based Arm, one of the world's most successful chip design companies, to Japan's Softbank in 2016 sent shockwaves through the industry. The jewel in the crown of the UK semiconductor sector, most of the world's smartphones contain chips designed by Arm. At the time, the government looked into ways of preventing the sale but unlike most industrialised democracies, the UK had no legislation designed to block the sale of a strategic asset to a foreign power. That is how the (NSI) came into being — signed into law on 4 January 2022, six years after Arm was sold to Softbank but just six months after Nexperia increased its stake in NWF from 14pc to 100pc.
"If the sale to Nexperia had happened six months later it would in all likelihood have been blocked," an industry source said. The NSI has been used successfully five times to block the sales of strategic assets. But this is the first time it has been used retrospectively. Reversing a sale after it has been concluded is far more challenging. Who pays? And how do you secure the future of the asset if the reversal creates an economic orphan?
This might go some way to explaining why it took so long to reach a final decision. There are of course a number of potential explanations, not least political turmoil. There have been three secretaries of state and three prime ministers since July. The results of the initial investigation by then national security advisor Stephen Lovegrove was not released to the public. This makes it impossible to counter or confirm claims that Lovegrove concluded that the sale of NWF did not constitute a threat to national security. But in any case, where issues of national security are concerned there are always limits to how much information can be released.
The legal issues around the conflict between Nexperia and the UK government are also complex. But despite the mountain of press coverage devoted to this issue, little has been written about what happened before 5 July 2021.
Major investment requirements
NWF was one of the most advanced chip manufacturing plants in the world when it was built in 1982, and it came into existence thanks to a £50mn ($70mn) grant from the UK Enterprise Board, a huge sum at the time.
Like most fabs around the world it had a string of corporate owners. In 2017 it was bought by German chipmaker Infineon, along with the other assets and technology of US firm International Rectifier. After a review of the merged firms a decision was taken to expand the manufacturing capacity at Infineon's existing plant in Dresden and NWF was sold to UK-based consortium Neptune 6, with some additional funding from the Welsh government. It became what is known as an open access foundry — a plant that manufactures chips based on orders from its customers around the world. One of these was Nexperia, which acquired a 14pc stake in NWF. Nexperia was acquired by China's Wingtech on December 24 2019.
Infineon has since gone from strength to strength. Three weeks ago it announced plans to invest €5bn ($5.3bn) to build a new 300mm chip fab in Dresden to meet growing demand for power electronics devices, subject to "adequate public funding".
Underinvestment might be the biggest threat the sector faces. The US has pledged up to $280bn over 10 years to support the semiconductor industry in the Creating Helpful Incentives to Produce Semiconductors (Chips Act) signed into law by president Joe Biden on 8 August. The EU European Chips Act — proposed in February — would unlock up to €43bn ($45.4bn) in public-private investment by 2030. The delayed UK semiconductor strategy is due to be released early next year.
