0x08 Nexit
On the UK government asking Nexperia to sell 86% of its stake in Newport Wafer Fab
You might have come across a news item last week. The UK government reversed the transfer of Newport Wafer Fab’s ownership to an entity “with Chinese characteristics” on national security grounds. Here’s BBC’s pithy description:
The takeover of Britain's largest microchip plant by a Chinese-owned company must be reversed, the UK government has said.
Newport Wafer Fab was acquired by Dutch-based technology company Nexperia, a subsidiary of Shanghai listed Wingtech, in July 2021.
However, Nexperia must now sell 86% of its stake "to mitigate the risk national security" following a review.
Stated Reasons for the Reversal
The UK government's stated position for blocking the deal is two-fold.
One, technology and know-how resulting from the reintroduction of compound semiconductor activities can pose a security risk. Compound semiconductors are specialised materials suitable for high-power, high-frequency commercial and military applications such as radars, communication towers, and signal jamming, but also in mobile phones for 5G baseband applications.
Two, the site's location can facilitate access to technological expertise and know-how in the South Wales Cluster, and China's presence could lead to the prevention of the companies involved here engaged in future projects relevant to national security.
Underlying Motivations
To be sure, it’s not as if the Newport Wafer Fab was actively working on compound semiconductors. It was something that was done at the fab sometime ago. The apprehension primarily comes from China investing a fortune in compound semiconductors, as chips made using this technology can work better for specialised applications. For instance, Gallium Nitride can handle higher frequencies, making it useful for 5G radios. Silicon Carbide chips, on the other hand, can manage high-power applications such as Electric Vehicle power electronics better.
And the Wales cluster does some pretty cool stuff on compound semiconductors. They aim to build the world’s first compound semiconductor cluster here. Check this pitch on Wales’ Trade and Investment portal:
Compound semiconductors are integral to the development of smartphones, wifi, satellite communication systems, robotics and efficient LEDs to name but a few. From its headquarters in Cardiff, IQE has a 55% global market share in compound semiconductor technology so it is highly probably that your phone contains a little piece of Wales. IQE is leading the way in developing the global market and spearheading the development in Wales. The Compound Semiconductor Centre, Institute, Manufacturing Hub and Applications Catapult are integral to this Cluster. Our highly integrated approach will guide you from concept to production – whether you're an SME or a global, household name, we'll support you when designing new material through to manufacturing.
And the IQE pitch:
We produce the atomically engineered wafers that can then be processed by chip fabrication companies such as Newport Wafer Fab, using equipment made by people like SPTS. They then get packaged by the likes of Microchip in Caldicot.
So, the real reason seems to be that the UK government wants to find its place in the semiconductor supply chain. Many countries have launched industrial policies in this sector, and the UK doesn’t want to be left behind. The South Wales Cluster is one nucleus around which it hopes to craft its semiconductor game plan. Seen from this frame, a takeover of the Newport Wafer Fab by a Chinese entity would harm the chances of shaping this cluster in a way that the UK government prefers. And because the deal involved a Chinese company, there are fears that this cluster could get caught in the US-China tech war crossfire.
So, the fab will be the UK government’s baby probably. It was ridden with debt in the past. Its low price tag (£63 million) is indicative of the troubles it was facing. The company's survival could now depend on government funding. And because this sector is being viewed as strategic, the UK government might well pump the required money.
What about China?
The Newport Wafer Fab is not the only alternative for China for compound semiconductor know-how. The effect is more symbolic. This clearly signifies the decoupling of Chinese and non-Chinese semiconductor ecosystems. Countries are now willing to intervene in investment deals even if they do not concern cutting-edge semiconductors. On high-tech matters, Chinese companies and investments are being seen—first and foremost—through the national security lens.
While these actions might well slow down China's semiconductor industry, they are more about countries wanting to shore up their own fortunes in the semiconductor domain. The recent spate of industrial policies such as subsidies, export controls, and investment restrictions are all part of the toolkit to shore up domestic alternatives in semiconductor production. Let’s see how far they travel.