Paul van Gerven
12 July

After being pressured by Members of Parliament, British Prime Minister Boris Johnson has ordered a review of Nexperia’s purchase of a Welsh wafer fab on security grounds.

The British government will review the acquisition of the Newport Wafer Fab by Chinese-owned Nexperia after all. Two days after the deal was announced, Prime Minister Boris Johnson told Members of Parliament that he asked his national security adviser to evaluate the takeover of the Welsh facility. “We have to judge that the stuff that they’re making is of real intellectual property value and interest to China, whether there are real security implications,” he said.

Previously, it seemed like the deal would be waved through by the authorities. Business secretary Kwasi Kwarteng said that the government was monitoring the situation closely, “but doesn’t consider it appropriate to intervene at the current time.” The Welsh secretary, too, said he was “satisfied” that security issues were not at play.

Newport Wafer Fab
Credit: Newport Wafer Fab/Nexperia

However, critics put forward that the lack of scrutiny flies in the face of commitments the UK made at the recent G7 summit in Cornwall. “When the UK signed the Carbis Bay G7 communique, we pledged to take steps to build economic resilience in critical global supply chains, such as semiconductors. This appears to be an immediate and very public reversal of that commitment,” said Tory MP Tom Tugendhat, leader of the UK government’s China Research Group and chairman of the Foreign Affairs Select Committee.

UK law gives the government 30 days to decide whether to allow the deal to proceed or call it in for scrutiny. According to Bloomberg, Nexperia’s parent company Wingtech Technology has acknowledged that the acquisition faces “uncertainties.”

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Summoned

The hastily instigated probe illustrates how touchy mergers and acquisitions have become in the semiconductor industry over the past few years, particularly if Chinese firms are involved. The Newport Wafer Fab may be one of UK’s largest, but it manufactures older technologies. Collecting an annual revenue of about 68 million dollars, it’s tiny by industry standards. Nexperia was the second-largest shareholder and already operates another production site in Manchester.

Five years ago, the British government greenlit the 31-billion-dollar acquisition of Arm by Japan’s Softbank. The sale of the same company to Nvidia, announced last year, invoked a security review. In 2017, a Chinese private equity firm was allowed to acquire Imagination Technologies. However, last year, its executives were summoned to Parliament to answer questions about the transfer of sensitive technology to China.

Geopolitical leverage

As the Covid-19 pandemic shattered global industrial supply chains and triggered a worldwide chip shortage, Western governments’ anxieties about overly relying on foreign companies for the supply of critical technologies have peaked. But even before that, many countries started beefing up defenses against foreign (read: Chinese) takeovers of key technological firms.

The UK is no exception to this, introducing new legislation last April. However, post-Brexit Johnson has to walk a tight rope. “I don’t want an anti-China spirit to lead to us trying to pitchfork away every investment from China into this country. That would be economically foolhardy,” he said following his announcement to investigate the acquisition.

Tugendhat and allies likely won’t back down easily, though. “With the world experiencing a shortage in semiconductor production and companies and countries competing over the limited supply that exists, it’s crucial that the UK protects its strategically valuable manufacturing resources,” he wrote to Kwarteng when Nexperia had started due diligence proceedings to take over the Welsh fab. To CNBC, he said that the government is to explain why we’re “turning a blind eye” to a British foundry “falling into the hands of an entity from a country that has a track record of using technology to create geopolitical leverage.”