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November 18, 2022

All the Newport Wafer Fab episode shows is the lack of government support for UK semiconductors

While ending Nexperia's takeover of Newport Wafer Fab makes geopolitical sense, there isn't a Plan B for the 500 workers at the site.

By Matthew Gooding

In 1982, British semiconductor pioneer Inmos opened a new factory in Newport, South Wales. It was designed by the Richard Rogers Partnership, the architects behind the Pompidou Centre in Paris, and its inside-out structure, all steel girders and large, brightly coloured, pipes, means it bears more than a passing resemblance to the French capital’s post-modern behemoth.

Today the factory, now known as Newport Wafer Fab, is the UK’s largest semiconductor plant, churning out some 32,000 silicon wafers a month. It is also at the centre of a political row about UK tech’s relationship with China, a conflict in which more than 500 staff at the plant could end up as unwitting victims.

Newport Wafer Fab was purchased by Dutch semiconductor company Nexperia last July in a deal reportedly worth £68m. The factory has struggled to stay afloat in recent years, and the ownership of Nexperia was welcomed by the Welsh government and local community.

But there was a problem. Nexperia has been Chinese-owned since 2018 when it was acquired by Wingtech Group, itself partly subsidised by the Chinese government. Given China’s long record of stealing and weaponising technology, it was perhaps no surprise that anti-China Tory MPs soon raised concerns about the deal. Though the government initially appeared to wave it through without a murmur, then-prime minister Boris Johnson belatedly ordered an investigation into the takeover, with business secretary Kwasi Kwarteng opening a formal national security probe earlier this year.

The UK government this week blocked Newport Wafer Fab’s takeover by Nexperia. (Photo by Matthew Horwood/Getty Images)

This culminated on Wednesday with new business secretary Grant Shapps ordering Nexperia to sell at least 86% of its holding in the factory, with Shapps deeming that giving the company access to “technology and know-how that could result from a potential reintroduction of compound semiconductor activities at the Newport site” represented a security risk. He added that embedding Nexperia in the South Wales semiconductor cluster, centred around the Newport plant and research at Cardiff University, could also be problematic.

The importance of Nexperia in the UK chips sector

While anxiety has certainly built in recent months within the UK government about the extent of Chinese influence in the British tech sector, it is worth taking a step back and considering how great a security risk the Nexperia deal actually poses. Compound semiconductors, which combine silicon with new materials such as gallium nitride (GaN) to offer greater capacity and efficiency, are an exciting technology, particularly in the field of power electronics. And while some work on these chips has previously taken place at Newport, it is not currently involved in any significant development or production.

What Nexperia actually bought is a power semiconductor factory which is “quite small in the scheme of things,” according to semiconductor analyst John West, who spoke to me when the deal was announced last year. It uses older process technology, which China already has ample access to, to supply customers, mainly in the automotive and medical sectors. It is worth also noting that Nexperia runs a factory in the UK already, in Manchester, where it carries out R&D and employs 1,000 people, apparently without threatening UK tech sovereignty. Any security risk posed by the Newport acquisition is certainly more theoretical than actual at this point.

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Nevertheless, taking a strong stance on China’s involvement in the chip supply chain makes sense, particularly as other western countries are doing the same. Germany blocked the sale of a semiconductor plant to Chinese-owned Silex last week, and sweeping US export controls on its chip companies have limited Beijing’s access to advanced processors used in AI development and for powering data centres.

But having vetoed the deal, the government has a responsibility to over 500 workers at Newport Wafer Fab, who wrote an open letter earlier this year stating they “fully supported” Nexperia and its ownership of the site, adding that the company had provided stability, improved job security, wages and working conditions. The plant has previously had a string of owners, and was reportedly on the verge of bankruptcy before Nexperia intervened. These staff now face another period of uncertainty while the situation is resolved, at a time when the wider economic outlook is bleak.

Moreover, it is an opportunity for the government to show it is serious about the UK semiconductor sector, which has thus far been largely ignored by Whitehall despite all its talk about wanting to make the post-Brexit UK ‘a global tech hub’.

The future of the UK semiconductor industry

Turning Newport Wafer Fab into a truly important centre for compound semiconductor development, which can make a serious contribution to the UK economy, will require a coherent semiconductor strategy and heavy public investment (the US and Europe are putting billions in domestic chip building capacity) – both of which have so far been conspicuous by their absence in this country, despite the widely publicised global chip shortage and its negative impact on myriad industries.

There are signs that things may be changing. Parliament’s Business, Energy and Industrial Strategy Committee has been running an inquiry looking at the UK chip sector, with a report set to follow, while over the summer the Department for Culture, Media and Sport appointed Richard Duffy as a senior policy adviser for semiconductors.

But unless the government puts its money where its mouth is and backs this crucial area of technology, the decision to block Nexperia’s takeover of Newport Wafer Fab will be a largely symbolic one – and chancellor Jeremy Hunt’s declared intention to turn the UK into the “world’s next Silicon Valley” merely empty rhetoric.

Read more: The US wants to cut off East Asian chip exports to China. Some Asian countries are set to reap the benefits.

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