The reasoning for the government intervention of the UK’s largest largest chip producer (Newport Wafer Fab) to a Chinese owned firm has perhaps become clearer this week.
Earlier this month it was revealed that Newport Wafer Fab (NWF) was to be acquired by Dutch chip firm Nexperia, which in turn is owned by Chinese firm Wingtech.
The undisclosed purchase price was apparently just £63 million ($87 million), which has questioned as being very cheap for a fab.
Newport Wafer Fab is based in Newport, Wales, and it is a high volume 200mm wafer fab that makes silicon chip used in power supply applications for the car industry, which has been hit particularly hard by the chip shortage.
The fab has also been developing more advanced “compound semiconductors,” which are faster and more energy efficient.
As soon as the Nexperia acquisition was announced, national security concerns were imediately raised by Tom Tugendhat MP, leader of the UK government’s China Research Group and chairman of the Foreign Affairs Select Committee.
Tugendhat voiced his concerns that the UK was selling a prized asset to a Chinese-owned company at a time when there’s a global chip shortage that could last until 2023.
Just a couple of days after that concern was voiced, Prime Minister Boris Johnson ordered a review of the acquisition of Newport Wafer Fab.
The Prime Minister asked his national security adviser (Stephen Lovegrove) to review the purchase of Newport Wafer Fab by Nexperia.
“We have to judge whether the stuff that they are making is of real intellectual property value and interest to China, whether there are real security implications,” Johnson reportedly said at the time.
But now it has emerged that Newport Wafer Fab has over a dozen UK government research contracts, according to a document seen by CNBC.
And at least one of contracts involves developing chip technology for a radar system that would be used in fighter jets.
The contracts are largely funded by Innovate UK, the British government’s innovation agency, through various grant schemes that amount to around £55 million ($75 million), a source told CNBC.
“I don’t think anybody realized that there were a couple of defense-related projects in there,” said the source.
NWF makes the wafers that electronic circuits are printed onto.
Nexperia reportedly declined to comment and Wingtech did not immediately respond to a CNBC request for comment.
Companies and individuals with knowledge of NWF have reportedly been asked by Lovegrove’s team last week what the plant does and who for, the CNBC source said.
The source added that Lovegrove’s team has been provided with a list of NWF’s contracts, seen by CNBC, and informed that Nexperia plans to terminate some of them so that it can focus on sending chip wafers back to China.
Lovergrove is expected to report his recommendations in a couple of weeks time.
The semiconductor sector has risen in geopolitical prominence, as China has targeted it as a key technology for the future economy.
It should be remembered that UK competition watchdog is currently investigating Nvidia’s $40 billion bid for Cambridge-based ARM, whose chip designs are used by chip manufacturers around the world.
That investigation was launched in January, and the government in April voiced its own national security concerns, despite the fact that Nvidia is an American firm.
The UK however is not the only country questioning purchases by Chinese firms of late.
South Korea recently launched a review after Beijing-based Wise Road Capital agreed a deal to buy semiconductor firm MagnaChip.
In March, the Italian government blocked Chinese firm Shenzhen Investment Holdings from acquiring a controlling stake in LPE, a Milan-headquartered semiconductor company.
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