So, one of Wales’ leading tech firms, Newport Wafer Fab (NWF), is now owned by a Chinese business.
The 海角视频’s largest chip maker based in Newport has been bought by Nexperia, which is wholly-owned by Chinese tech firm Wingtech for £65m.
There were a few concerns raised, most notably Tory MP and chairman of the Foreign Affairs Committee, Tom Tugenhadt, that a key industrial asset shouldn’t fall into Chinese hands on strategic national interest and security grounds, but governments in Cardiff Bay and Westminster have, publicly at least, have shrugged their shoulders.
It was only last year, after considerable pressure applied by the then Trump administration, that the 海角视频 Government took the decision to remove Chinese tech firm Huawei from the 海角视频’s 5G network by 2027.
But with the 海角视频 Government now looking to forge a more nuanced relationship with the Chinese, which has just belligerently celebrated the 100th anniversary of its communist party and remains indifferent to criticism of its appalling treatment of the Uighur minority group, it just didn’t see NWF in the same light, as it seeks to find new markets for 海角视频 plc post Brexit.
But what of the Welsh Government which had £13m ‘skin in the game’ having helped to part finance the management buy-in management buyout of NWF from German firm Infineon back in 2017? That acquisition, with backing too from HSBC, was led by the outgoing chief executive of IQE – another leading Welsh tech firm - Drew Nelson.
The Welsh Government, having received back its £13m plus interest in full from the Nexperia deal, said that issues over Chinese ownership were a matter for the 海角视频 Government. Yes, that is true, but it has a voice and shouldn’t be afraid of coming out from behind the ‘non-devolved curtain’ to raise it.
If this was say a Chinese takeover of Port Talbot steelworks would the reaction of both governments have been so seemingly indifferent?
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The Welsh Government had a charge on the NWF building, which it relinquished to support the Nexperia takeover, but so did HSBC a lender to both NWF and Nexperia. However, the bank is not there to adjudicate on what is in the best interests of the Welsh economy, but it should be writ large ‘on the tin’ of the Welsh Government, even if blocking the takeover through the new National Security and Investment Act would have been a matter for Boris Johnson’s administration.
Maintaining local ownership of NWF, could have been seen as sitting nicely into the Welsh Government’s cherished foundational economy. Nexperia will no doubt invest in the facility in a deal that safeguards the existing 470 workforce.
However, the national interest issue applies to the economy of the Cardiff Capital Region, as the chip manufacturer is at the heart of efforts to create a new hi-tech compound semiconducter cluster for the region employing thousands.
The growing network of regional industry partners including tech firms such as IQE, SPTS Technologies, Microchip and yes Newport Wafer Fab. Its early stage research capacity is being backed with partners in Swansea and Cardiff universities. It is also being supported by the Welsh Government the Cardiff Capital Region’s £1.2bn City Deal.
The cluster’s industrial chain goes from wafer manufacturing right through to packaged chips, providing a capability in next generation semiconductors which are going to be at the heart of virtually every industrial vertical imaginable, including aerospace, automotive, electric vehicles communications, fibre optics, data centres 5G, healthcare medtech and robotics.
Where does NWF now sit in this ecosystem? Now under Chinese ownership will it continue to be an inclusive and collaborative player? I am sure these are questions that the City Deal, under its chief executive Kellie Beirne, will be seeking answers to.
The one party state government of China has identified semiconductors as a sector where it is at a technological disadvantage to the west. China imported $350bn worth of chips last year. Will NWF be positioned to focus more on meeting that demand in the ‘home country’? In fairness under Infineon control the plant’s only customer was Infineon itself, which changed following the acquisition in 2017.
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Nexperia has a European wide customer base, so there is no reason why NWF will not continue to have a wider range of customers with a focus on the cluster too.
How Nexperia ended up being able to acquire NWF was linked to supply chain disruption. One could surmise that Nexperia needed surety that a major order placed with NWF, perhaps for yet to be verified chips, would be met.
The ramping up of production could have required NWF to raise expansion capital. If there were liquidity issues, then Nexperia could have been forced to move in to protect its intended new supply. As a result Nexperia was able to put two directors on its board back last March. Last month it took a charge over the IP and property assets of the business.
So, without government intervention, or an alternative ownership route, the acquisition by Nexperia was inevitable. The Welsh Government could have intervened directly by acquiring a public interest stake in the firm that prevented Chinese ownership. Perhaps, that possibility was explored but came to nothing. But could the City Deal have come to the rescue?
However, with the City Deal having already invested £40m, through a sale and lease back agreement, to support a new foundry producing compound semiconductors for IQE, it might have been seen as one support intervention too far.
However, if we are to build industries of the future we need to support sovereign capacity, which NWF offered the wider cluster.
Mr Nelson, who was the biggest shareholder in NWF, is now looking to cut a deal with Nexperia for a spinout company to manufacture compound semiconductor chip technologies based at a separate facility at the Newport plant.
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However, this is not going to be easy. While Mr Nelson can use the proceeds from the acquisition from Nexperia, the spinout is going to need significant capital for new kit. Along with the cost of acquisition this could require funding of around £50m, with a relatively short window to get a deal done.
Perhaps, having received its money back the Welsh Government could support any fundraising efforts. For Mr Nelson salvaging part of a business that was previously wholly-owned might be galling and it has to be remembered that the deal he orchestrated in 2017 effectively save the plant as Infineon could have closed it due to a lack of market interest.
Hopefully, though a deal will be done.