​In July 2021 Newport Wafer Fab was purchased by the Dutch-based technology company Nexperia, who are a subsidiary of Shanghai listed Wingtech. The takeover of Britain’s largest microchip plant by a Chinese-owned company raised a few eyebrows at the time, and now after extensive scrutiny into the deal, the UK government have stepped in and ordered that the acquisition be reversed.

Consequently, they must now sell 86% of their stake “to mitigate the risk to national security” after several issues came to light during the comprehensive review just concluded. It came under investigation because of an on-going shortage of  computer chips globally, due in no small part to the effects of the pandemic, which severely hit a wide range of industries and companies incredibly hard.

The firm are said to be shocked at what they consider to be a completely irrational decision, and will appeal in the strongest of terms.

National security at the heart of the order to reverse

In its final judgment, the government indicated that they believed that the Newport buyout brought into play two specific security risks which raised significant alarm bells. Firstly, just how the development of the entire site could drastically “undermine UK capabilities” in producing compound semi-conductors.

Secondly, there was massive concern in regards to the actual location of the Wafer Fab/Nexperia plant. It is part of a semi-conductor cluster on the Duffryn industrial estate, which they believe could “facilitate access to technological expertise and know-how”, at other points of the specialised area. 

UK government reluctant to hand over “prized asset”

Semi-conductors allow electricity to flow through devices and are the fundamental components of everything from smart phones to the immense data centres, which power the internet, and are found in literally tens of millions of products. When the transaction took place, the South Wales plant was producing about 35,000 wafers a year.

The government came under pressure to intervene, led mainly by the Commons Foreign Affairs Committee, which said that the takeover involved “one of the UK’s prized assets” being placed into the hands of a strategic competitor, and potentially compromised national security.

Revolving door of prime ministers held up investigation

The chaos that has ensued in UK government since late spring, with three different Prime Ministers and changing cabinets, has held up decisions at top level, with first of all an enquiry pledged by Boris Johnson failing to happen, and then successive Business Secretaries not getting beyond initial probes. It was Kwasi Kwarteng’s successor Grant Shapps who finally pushed things through, but it has left Nexperia perplexed and they say that they cannot in any way accept the potential national security concerns and criticised the government for not entering being prepared to “enter meaningful dialogue”.

Nexperia head shocked at decision

Toni Versluijs, who is head of its UK operations at Nexperia, said: “We are genuinely shocked, the decision is disproportionate and it has put 500 jobs at risk.” He went on to say that they had rescued an investment-starved company from collapse, in a deal that was at the time welcomed by the Welsh government; so this ruling was bad for the economy and for the British taxpayer, who he declared could now be faced with a bill of over £100m, for the fallout from this decision.

Welsh authorities welcome clarity

However, a Welsh government spokesperson said that UK government’s decision had provided “some much welcome clarity” on the situation, which was never clear cut. Their priority now they stated, was to “safeguard the future of the hundreds of highly skilled jobs in Newport.”

Over a hundred times more sterile than an operating theatre

The plant is like something out of a science-fiction movie. Gloves, a white suit, hood, mask, and goggles need to be put on, and done so in a specified order, before stepping into a chamber where jets of air blast away remaining contaminants. This seemingly over-the-top process is actually done not to protect the people, but the product, as dust particles or hairs can ruin their complex circuitry.

Accordingly, the facility which is the largest for semi-conductor manufacturing in the country, has to be sterile, so has an environment which is incredibly one hundred times cleaner than a hospital operating theatre. Robotic arms extract silicon wafers which are coated with photosensitive material, and then light is projected on to the wafer to print the pattern of the chips. The end result is the creation of the semi-conductors, possibly better known as microchips, and which the vast majority of people have come to rely on to go about their daily lives, probably in many cases without even knowing it.

The main ingredient of the digital world

Basically, semi-conductors are basic building blocks of modern life. They have been getting smaller, year on year; however attempts to shrink transistors any smaller are finally meeting resistance from the limits of physics, which has finally slowed the pace of miniaturisation. Early transistors could be seen with the naked eye, but now a tiny chip holds many billions of them.

With internet access now becoming a precondition to active involvement in society, the semi-conductor technology will continues to improve and as a consequence, more people will develop digital skills.

Alarm bells sound when connection made

Nexperia were one of Wafer Fab’s customers, who stepped in when the Newport site, which had been operating since the 1980’s, hit some financial struggles. Although a Netherlands based company, further up the tree are its own bosses, who just happen to be the Chinese firm Wingtech Technology. Once this connection became known, all manner of alarm bells began to ring.

Martijn Rasser, a former CIA analyst and now a senior fellow at the Center for a New American Security think tank said after a probe into the sale was launched: “It is not in the strategic interest of the United Kingdom, the United States, or any other allies for that matter, to allow China to gain prominence in the global semi-conductor industry,”

China lagging behind on semi-conductors

This hypothesis was based on the fact that despite their dominance in technology, semi-conductors are the one crucial area where the Chinese struggle. Washington has previously recognised this and taken advantage by restricting supplies to the telecoms company Huawei, causing it considerable anguish and torment.

China has been desperate to catch up and reduce its dependency, hence many people believe, their sudden interest in Wafer Fab, albeit through a seemingly innocent separate agreement with a Dutch subsidiary organisation.

Taiwan out on their own for advanced technology in “chips”

Whilst the plant in Newport is still a long way behind Taiwan when it comes to the most advanced semi-conductors, it could with substantial investment, at least begin to catch them up. Therefore, what the government do not want to happen is the Chinese steal a march in any way, so after careful consideration of all the facts the decision to block the takeover was reached.

Although the appeal will be heard from Nexperia, such is the vital importance placed on the manufacturing of these remarkable miniscule products, a successful outcome in their favour would seem to be highly improbable.