UK Government Orders Nexperia to Sell Newport Wafer Fab Over National Security Fears

Some months ago, we reported on the acquisition of a Welsh semiconductor plant by a Dutch company that is entirely owned by a Chinese business, and while we felt that there were limited risks at the time, the UK government has now ordered the new owners to sell the foundry. What security challenges does China pose to the West, what exactly did the government say, and could the wafer fab have genuinely been a security threat?

What security challenges does China pose to the west?

If there’s one thing that we have reported on numerous occasions on Electropages, it’s the challenges faced by China and the security threat it poses. But while some may feel that we are beating a dead horse, the threat posed by China cannot go understated. Unlike countries that demonstrate physical force (such as Russia, Iran, and North Korea), China often uses its economic ties, technology, and government to influence foreign nations in favour of Chinese interests. Now, the West is hardly to blame in this area; the US is notorious for using its economic and military power to get what it wants, while the UK is well known for its mysterious MI5, MI6, and GCHQ agencies, whose work is still a mystery. 

But there is a strong argument that the threat posed by China is far greater, and it primarily comes down to its government. Unlike businesses in the West, Chinese companies are obliged by law to work with the Chinese government with regard to security, surveillance, and spying. In fact, it is often required by most prominent businesses in China to have government loyalists working internally whose sole purpose is to report on any deals and the internal culture of the company. 

Such close ties are generally not a concern for many manufactured goods which pose minimal security risks (such as nuts, bolts, plastics, and enclosures). But for products such as semiconductors, phones, and other complex electronic devices, it is very easy for the Chinese government to integrate surveillance devices and software, reverse engineer Western IP, and even outright integrate backdoors that allow for remote shutdown. While this may sound paranoid, numerous accounts of devices with unknown chips and hidden software have been reported, all of which have been sourced from China. 

Now, a Chinese-made phone with surveillance software is unlikely to threaten an unimportant individual, but if such systems are integrated into critical infrastructure (such as mobile networks and data centres), it becomes a genuine risk. As such, governments worldwide, including the US and UK, have systematically made efforts to remove Chinese manufacturers from critical infrastructure, with the most famous example being Huawei.

UK government orders sale of Newport Wafer Fab

During the summer of 2022, Nexperia (a Dutch company) purchased the controlling interest in a Welsh semiconductor foundry called Newport Wafer Fab. While many were excited about the opportunities presented with the acquisition, others were not. Specifically, the UK government raised concerns over national security grounds and that the acquisition of the wafer foundry could pose a threat to IP, manufacturing capabilities, or surveillance. Of course, many wondered why the UK government saw national security threats from a Dutch company, but it turns out that Nexperia is wholly owned by a Chinese company, Wingtech.

Now, the UK government has come to its final conclusion after an investigation into the semiconductor plant and has ordered Nexperia to sell at least 86% of the company. By doing so, Nexperia (and, by extension, Wingtech) will have trouble installing staff loyal to Wingtech, and the sale could even limit internal access to both Nexperia and Wingtech. Furthermore, the UK government acknowledged that the decision could be seen as far-fetched but iterated that the current global situation with semiconductors must not be left to chance.

Could the Newport Wafer Fab really be a threat?

As we discussed in our previous article, the Newport Wafer Fab is the UK’s largest fab, but by means not a cutting-edge facility. The current goal of China is to have the capacity to manufacture the latest chips, but numerous restrictions placed by the US are making that virtually impossible. However, the Newport Wafer Fab is designed to work with 180nm features which is far too large for creating mobile processors and other high-end devices. As such, the facility poses no threat to national security from the perspective of semiconductor capabilities.

Of course, semiconductor capabilities are not the only challenge that national security faces. It is perfectly possible that military equipment and custom ICs used by governments use larger node technologies thanks to their reliability and ease of manufacture, and this could see companies such as Newport Wafer Fab take on sensitive contracts. If PRC loyalists are able to get access to the facility, not only can they make copies of sensitive files, but they could even integrate backdoor designs and other surveillance circuitry without the end customer ever knowing. As such, the risk posed by Newport Wafer Fab comes from its ability to deal with any semiconductor client, including those working on critical infrastructure. 

We are indeed living in strange times, and with the current economic situation, it is tempting to try and turn out quick profits. However, there is no such thing as a free lunch, and selling out British companies to foreign investors who work with suspicious governments must be discouraged at all costs.