Newport Wafer Fab has over a dozen contracts with British government

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LONDON – Newport Wafer Fab, a chip factory in Wales sold to Chinese company Nexperia, has over a dozen research contracts from the UK government, according to a document from CNBC.

The contracts are largely supported by Innovate UK, the UK government’s innovation agency, through various grant programs totaling around 55 million discussions, CNBC said.

“I don’t think anyone realized there were a few defense-related projects going on,” the source said.

NWF, which employs around 450 people in Newport, Wales, UK, manufactures the wafers on which electronic circuits are printed. While Nexperia is based in the Netherlands, it is owned by China-based Wingtech, which is partially owned by government-supported investors. Nexperia declined to comment on this article and Wingtech did not immediately respond to a CNBC request for comment.

British Prime Minister Boris Johnson directed his national security adviser Stephen Lovegrove to investigate the takeover after lawmakers in his party said it should be blocked for security reasons. “We need to assess whether the material they are making has real value and intellectual property interest to China, whether it has any real security implications,” said Johnson.

Lovegrove, whose office did not immediately respond to a CNBC request for comment, is expected to announce his verdict in the next few weeks.

Companies and individuals with knowledge of NWF were asked by Lovegrove’s team last week what the plant does and for whom, the CNBC source said. The source added that Lovegrove’s team had been provided with a list of NWF contracts viewed by CNBC and said that Nexperia plans to cancel some of them in order to focus on returning chip wafers to China can concentrate.

A person familiar with Nexperia, who preferred to remain anonymous because of the nature of the conversations, denied this, saying the company will honor all existing contracts. However, the source insisted that there is nothing Nexperia could do if the NWF’s outgoing chairman Drew Nelson decides to take over the UK government contracts in his new factory, which he is outsourcing as part of the deal.

The Innovate UK contracts are one of the topics being negotiated as part of the spin-off, according to a third source close to the deal, and due to the nature of the discussions, have also asked to remain anonymous.

Defense Agreement

An NWF defense contract includes the development of chip technology with Cardiff University for a radar system to be used in fighter jets. The £ 5.4 million project aims to deliver technology to defense company Leonardo, missile developer MBDA, and aerospace chip maker Arralis.

“The UK paid for the research that makes Newport Wafer Fab a key partner in a UK government defense project,” Tom Tugendhat, head of the UK government’s China Research Group and chair of the Foreign Affairs Select Committee, told CNBC. “So we need a full review of the national security decision, including why the deal was waved off in the first place.”

“The UK and Welsh governments have spent tens of millions of pounds to support compound semiconductor innovation in Wales – with NWF at its heart,” he added. “While there is a global scarcity and Beijing hopes to dominate the market, we need to make our interests clearer, not just corporate profits or competitor opportunities.”

On 28 acres in South Wales, NWF produces around 8,000 wafers a week, many of which are shipped to Asia because the UK does not have the facilities to turn them into chips. NWF’s 200mm wafers are primarily used for powering the automotive industry, which is particularly hard hit by the chip scarcity, but they have many other uses.

Nexperia, which was already a shareholder in NWF, paid around £ 63 million to build the facility. NWF tried to raise capital to stay independent earlier this year, but Nexperia triggered a contractual clause that allowed it to take over the facility, the first CNBC source said, confirming what was previously reported by The Telegraph. While the deal is being examined, a flag with the Nexperia logo has already been hoisted over the NWF sign at the entrance to the site.

“The price of £ 63 million for a wafer fab is tiny,” Glenn O’Donnell, an analyst at research firm Forrester, told CNBC. “Most wafer fabs cost well over £ 1 billion. Even if they are older technologies, this deal is ridiculously cheap.”

The entrance to the Newport Wafer Fab manufacturing facility in Newport, Wales.

Britain has no plans to block deal

Amanda Solloway, a minister for the UK’s Department for the Economy, Energy and Industrial Strategy, reiterated Thursday that the government has no plans to intervene as it is not currently a national security issue.

“It is true that commercial transactions are primarily a matter for the parties involved,” she said. “The government has been in close contact with Newport Wafer Fab but does not consider it appropriate at this stage to intervene in this case.”

Their comments came after former Conservative Party leader Iain Duncan Smith said he believed the UK government was in “imperfect mess” over the deal.

“I wonder if you looked at what China thought of semiconductors in the wake of this missing decision?” he asked. “China is the world’s busiest exporter and buys semiconductor technology everywhere it can find it.”

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