Newport Wafer Fab: UK's National Security vs. Foreign Investment

Key things to know:

• UK's National Security vs. Investment: The UK government's scrutiny over the Newport Semiconductor Foundry sale highlights the delicate balance between protecting national security and encouraging foreign investment.

• Uncertain Future for Employees: The ongoing delay in the sale process, particularly the government's response to the US firm Vishay Intertechnology's offer, has placed jobs and the foundry's future in limbo, raising concerns about the impact on the UK's semiconductor industry.

• Geopolitical Tensions: The sale's complexities are further intensified by geopolitical tensions, with the initial acquisition by Nexperia, a subsidiary of a Chinese company, sparking national security concerns.

• Impact on UK Manufacturing: The situation at Newport Wafer Fab is reflective of broader challenges facing the UK's manufacturing sector, emphasising the need for clear strategies to support critical industries amidst global uncertainties.

Navigating the Crossroads: The Newport Wafer Fab Sale Dilemma

The unfolding story behind the forced sale of the Newport Semiconductor Foundry has seen numerous developments, with the UK government wanting to protect national security, outside investors wanting to move on with the acquisition, and the uncertainty that rests in the jobs at the foundry. Ongoing heel-dragging by the government continues to put pressure on all those involved, with some wondering if the foundry has any real future at all. What exactly started the drama behind the Newport Wafer Fab, what is the current situation, and where could this lead?

What exactly started the drama with the Newport Wafer Fab?

Over the past two years, one of the few semiconductor fabs in the UK has been at the centre of attention after it was purchased by Nexperia. Despite Nexperia themselves being a company located in the Netherlands, Nexperia is a subsidiary of a partially state-owned Chinese company, Wingtech Technology, and it is this state-ownership that has made regulators in the UK concerned.

As a result of the ongoing semiconductor war with China, the UK government saw it necessary to force Nexperia to sell off the Newport Wafer Fab to limit China's access to cutting-edge technologies. Ideally, the fab would be sold to UK-based entities, but even those that reside in the EU and US would pose little threat to the UK and the West's interests. Thus, the Newport Wafer Fab went onto the open market and saw interest from numerous parties.

However, for engineers who understand the semiconductor industry, the desire for the UK government to restrict Chinese access to the foundry and its technologies seems unusual when considering that the Newport Wafer Fab is far from being at the forefront of any semiconductor industry. That isn’t to say that what they develop is not suitable for modern technologies, but what can be said is that the facility is not manufacturing bleeding-edge FPGAs, CPUs, or memory (all of which are a high priority for the Chinese government). 

Furthermore, when it comes to the semiconductor industry, the area where the UK excels is IP development. For example, one of the world’s largest developers of low-energy CPUs, ARM, was founded in the UK and remains there to this date. Because of this, it made perfect sense that the UK government blocked the attempted acquisition of ARM by NVIDIA with the hope of preventing the potential loss of UK business, employment opportunities, and loss of control over key technologies. 

The Newport Wafer Fab sale is on hold for now

With Nexperia having to sell the Newport Wafer Fab, a US-based business that has shown great interest in the foundry,  Vishay Intertechnology went as far as putting in an offer of $177m back in November 2023. However, despite the government's stated guidelines on foreign purchasing (claiming that security checks and other regulatory processes should not take more than 30 days), the UK government has yet to respond to the attempted purchase, putting the Newport Wafer Fab in a state of limbo.

To make the situation more desperate, Vishay Intertechnology announced that it would be investing $1.2bn globally in semiconductor technologies, some of which could very well go towards the Newport Wafer Fab facility. Considering that a number of employees at the site have already been made redundant, adding uncertainty at this time puts pressure not only on employees but potentially on the UK's position in the semiconductor industry. 

Recent developments have highlighted the complexities surrounding the Newport Wafer Fab's future, particularly in light of the UK government's scrutiny under national security grounds. The delay in approving the takeover by Vishay Intertechnology, a US firm, underscores the delicate balance between fostering foreign investment and safeguarding national interests. This situation exemplifies the broader challenges faced by the semiconductor industry in the UK, where strategic assets are caught in the crosshairs of geopolitical tensions and economic ambitions.

Of course, this potential loss of jobs isn’t the only concern that has hit the UK manufacturing market, with 2,800 jobs potentially being lost at the Port Talbot steel works. While this doesn’t directly affect the semiconductor industry, it does demonstrate the issues facing manufacturing in the UK in general.

The ongoing uncertainty not only affects the semiconductor sector but also reflects broader concerns regarding the UK's manufacturing industry's resilience and strategic autonomy. The government's hesitance, as seen in the Newport Wafer Fab case, raises questions about the effectiveness of current policies in protecting and nurturing critical industries. This scenario underscores the need for a clear and coherent strategy that aligns national security interests with the goal of maintaining a vibrant and competitive manufacturing sector.

However, if the acquisition by Vishay Intertechnology goes through, there is still a concern that it could result in job losses and/or the shutdown of the facility as the new owners look to cut costs. Finally, this growing uncertainty has also contributed to the reduction of sales for the foundry as well as the inability to expand its services.

Where could this situation lead?

If there is one thing that a business hates, it’s uncertainty, and the more uncertainty there is, the bigger the impact on a business's ability to operate. A great example of this was seen during the COVID pandemic, where government indecision and lack of clear guidance resulted in markets being unsure of how to react, causing significant drops in the valuation of companies.

This same uncertainty also affected engineering projects, with component supplies becoming exhausted, funding being pulled from new developments, and many being made redundant. It is very likely that had the government acted quicker with regard to financial aid and rules, the impact on the economy would have been less severe. 

The situation at Newport Wafer Fab is a microcosm of the broader challenges facing the UK's technology and manufacturing sectors. The National Security and Investment Act, while designed to protect national interests, must be implemented in a manner that does not unduly stifle innovation or deter investment. The act's application in cases like Newport Wafer Fab's highlights the need for a balanced approach that safeguards security without hampering the growth and competitiveness of the UK's tech industry.

In the case of the Newport Wafer Fab, the uncertainty in the government is directly impacting the business’s ability to operate, which itself is a violation of the fab's right to operate in the free market. Furthermore, as the nature of the devices manufactured by the facility is not cutting edge, the attempt to block its sale to foreign interests is doing nothing but helping the UK's position in the semiconductor industry.

If this uncertainty continues, it is very likely that the facility will see further redundancies before it can be put to commercial use. But more importantly, if the government fails to act now, it could put off future investors from investing in the UK semiconductor industry.