Security concerns spark review of UK chip fab purchase by Chinese-owned firm

• China-backed Nexperia says it has acquired Welsh firm Newport Wafer Fab
• UK Prime Minister Boris Johnson says national security advisor will scrutinise takeover
• Insists that semiconductors are of 'huge importance' to UK...
• ...But says it would be foolhardy to chase away every Chinese investor

Only two days after Nexperia, a Dutch outfit that is a subsidiary of a large Chinese firm, announced it had completed the acquisition of Welsh semiconductor factory Newport Wafer Fab (NWF), UK Prime Minister Boris Johnson announced a review of the takeover, citing national security concerns.

Nexperia announced it had “completed the transaction to acquire Newport Wafer Fab” on Monday: On Wednesday, when addressing the UK Parliament Liaison Committee, the Prime Minister said he had asked National Security Advisor Stephen Lovegrove to carry out a review of the deal.

"We have to judge whether the stuff that they (NWF) are making is of real intellectual property value and interest to China," Johnson said. "I've asked the National Security Advisor to look at it."

The kerfuffle kicked off after it emerged that Nexperia – a Netherlands-based chip manufacturer – is a subsidiary of Chinese chip conglomerate Wingtech.

The deal could not have been struck at a more sensitive time for the global chip industry. Demand has never been stronger, as a greater number of companies across a broadening range of economic sectors seek to use semiconductors in their products. Supply, though, has never been more constrained thanks to the pandemic, which forced temporary closures on factories all over the world.

The resulting potential for economic fallout has led governments to prioritise the security of their semiconductor supply, turning the shortage into a political and national security issue. In the US in April, President Joe Biden addressed the shortage during a summit with business leaders, calling for investment to protect its chip supply chain and revitalise the country's manufacturing sector. In China, the government's most recent five-year plan places semiconductor self-reliance as a top national priority.

And in the UK? Well, the UK seems until now to have been quite willing to give up its semiconductor crown jewels. In 2016, there were only one or two dissenting voices when Japan-based Softbank agreed to shell out £24 billion for ARM, one of the world's most successful designers of processors, headquartered in the UK. Times change though, and when California's NVIDIA – best known for its graphics processing units (GPUs) – announced last September it was buying ARM from Softbank for $40 billion, the furore in the UK was much louder. Still, it took several months and intense pressure for the government to agree to conduct a review on national security grounds. (See Softbank sells ARM to Nvidia for $40B: Another home-grown loss for the UK.)

On Wednesday, Johnson attempted to shake off this somewhat lackadaisical image. "I think semiconductors are of huge importance to this country," he said. "One of the things I wanted to look at immediately when I became Prime Minister was whether we could become more self-reliant."

However, producing cutting-edge semiconductors is very complicated and therefore very expensive. Indeed, Johnson pointed out on Wednesday that the government looked into the cost of a new semiconductor factory, and the estimate came back at a princely £9 billion. Now, he didn't actually say the UK lacks that kind of money to pour into a chip factory, but nonetheless the impression he gave was that it would be a hard sell to the bean counters.

He also appeared frustrated at the knee-jerk resistance to investment from China. "I do not want anti-China spirit to lead to us trying to pitchfork away every investment from China into this country. I have to say I think that would be economically foolhardy," Johnson said.

Under ordinary circumstances, people might not pay much attention to the acquisition of a UK company by a Dutch company that happens to be a subsidiary of a Chinese company; it's just business. As previously discussed, though, these are not ordinary circumstances. Compounded by the ARM/Nvidia saga, this deal has taken on much greater significance. It has become the moment where the UK decides whether it wants to be in thrall to global semiconductor superpowers, or try to become one itself.

- Nick Wood, reporting for TelecomTV