December 4, 2022

Eureka News

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This Welsh chip mayhem is a lesson in strategy

3 min read

The UK’s National Security and Investment Act – with its new powers to audit, block and reverse takeovers – didn’t really define national security.

This vagueness – in a system supposedly trained only for security concerns – raised suspicions that its expansionary powers were being used to protect economic interests or broader industrial objectives.

You will be. And at a small semiconductor company on the outskirts of Wales’ third largest city, one problem leads to another. Best embrace it.

The government last week ordered the rollback of the 2021 acquisition of Newport Wafer Fab by Nexperia, a Dutch subsidiary of Chinese group Wingtech. Back then, Newport had needed working capital to fill orders in a post-pandemic boom. Nexperia had the right to buy the rest under a 2019 agreement when it took over 14 percent of the company. It paid £63m for 86 per cent and has invested heavily since then.

Newport is an unlikely minnow at the center of this battle. It makes silicon wafers that are shipped to Asia to be made into chips. That’s not cutting edge. But the company is highly efficient (which is important in this world) and sits in a cluster of semiconductor-related activities in neighboring companies and Welsh universities.

That’s part of the problem, according to the government. While Newport isn’t currently doing sensitive work (and it isn’t), its connections could prevent the cluster from “engaging in future projects relevant to national security.” There are other unrealized headaches: national security risks could arise from the “potential reintroduction of compound semiconductor activities” at the site.

On that basis, just about anything could be considered a threat to national security. Maybe this is just about China or geopolitical friendships after a group of US congressmen raised concerns. But a previous national security review found no concerns about Newport’s technology. Nexperia, which has 28 days to start a judicial review, had offered to cut all ties to the cluster, never transfer intellectual property out of Newport, not take on any military projects or engage in compound semiconductor manufacturing, and have a government oversight board .

A long-promised UK strategy for this sector remains MIA. But the Government’s suggestion that domestic capacity in compound semiconductors is important makes it less likely to achieve an outcome where the Welsh facility actually makes some.

Finally, vocal opponents led by former owner Drew Nelson mainly objected to Nexperia running the site solely for its own use. They want what they call an “open access” facility where others can produce designs. Another buyer, regardless of nationality, might still prefer to churn out high-margin silicon rather than trying to expand into new interconnect technologies.

Nelson reportedly has a consortium ready to buy. But the Welsh Government declined to invest in the site during its 2020 pandemic woes, partly over doubts that it would be a “viable venture” without “safe . . . volume commitments” from the company’s largest customer at the time, Nexperia.

The forced seller’s deal — which has been repeatedly accused of planning to shift production once a new Wingtech facility is up and running in Shanghai — remains critical to supporting 550 jobs in Newport, at least in the short or medium term. And the Dutch group has been asked to come up with a sales plan, with the business secretary monitoring and vetoing the outcome.

The Newport decision puts the UK in tune with global sentiment about the national importance of semiconductors. But ultimately, the company’s history is one of passing interest and government neglect. Established under state-owned Inmos in the 1970s to try to boost domestic industry, it was privatized in the 1980s and then sold to European ownership. Germany’s Infineon Technologies transferred the interconnect technology abroad in 2017 and sold Newport to Nelson with the help of the Welsh government.

Before and since, it has been involved in various projects using taxpayer innovation money. Compound semiconductors were part of the 2017 industrial strategy before disappearing from its 2021 successor, the Plan for Growth. Still, last week’s sober autumn statement increased funding by 35 per cent for the UK’s nine innovation centres, including one in this field.

A clear, consistent industrial policy helps to reduce the investment uncertainty associated with state intervention powers. Newport is about China. But it’s also about the virtue of picking out what’s important and sticking with it.

helen.thomas@ft.com
@helentbiz

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