Kwasi Kwarteng, the UK business secretary, will be warned in a Whitehall report that allowing the sale of a Welsh semiconductor company to a Chinese buyer would undermine one of the country’s strategic industries.
Kwarteng has until the end of June to make a final decision on last year’s purchase of Newport Wafer Fab — the UK’s largest semiconductor manufacturing plant — by Nexperia, a Dutch subsidiary of the Chinese tech company Wingtech.
In March, the government’s national security adviser, Stephen Lovegrove, concluded in a probe, retrospectively ordered by prime minister Boris Johnson, that there were insufficient reasons to block the deal on specific security grounds given the company’s outdated technology.
But Johnson separately asked the Department for Digital, Culture, Media and Sport at the end of last year to conduct its own assessment, including a review of “semiconductor supply chains” along with recommendations to improve the long-term resilience of the industry.
Officials are expected to finish that review this summer, although not necessarily before Kwarteng makes his final decision on the deal. The two departments — business and culture — have been liaising closely over its direction.
The report will back Lovegrove’s assessment that Newport Wafer, which produces silicon wafers at its plant in south Wales, is a low-tech business that does not pose a direct security threat if it is owned by China, according to officials involved in drawing it up. But the officials said it would also warn that the business is part of a cluster of semiconductor expertise in Wales of strategic importance, which could be undermined by the sale.
“There are issues of sovereign capability here,” said one. “There is a big issue about this being a strategic, important sector, and there’s a strong case that the semiconductor industry should be protected.”
The review is expected to point to the global shortage of microchips, which could last until 2024, and the fact that Russia’s invasion of Ukraine has highlighted the need to support critical domestic industries.
Newport Wafer Fab is one of the four main companies that make up the Welsh semiconductor “cluster”, alongside IQE, SPTS Technologies and Microchip. The Welsh government says these companies, which supply components for smartphones and electric vehicles, together generate more than £600mn in revenue every year and employ more than 2,000 people.
Kwarteng has also come under pressure from some Tory MPs including Tom Tugendhat, chair of the House of Commons foreign affairs committee. Tugendhat has called for the takeover to be reviewed under the new National Security and Investment Act. He has also criticised the government for lacking a “clear strategy to protect what’s left of our semiconductor industry”.
Ciaran Martin, former head of the National Cyber Security Centre, has also expressed “very real concerns” about the buyout, which comes at a time of deteriorating relations between China and the west.
On Tuesday, a government spokesperson said: “The government is considering the case and no decisions have been made.”
One official insisted that the DCMS review of the semiconductor industry was “separate” to the government’s decision on Newport Wafer Fab.
In a statement Nexperia said the deal was about acquiring production capacity and a professional workforce, “not unique technology”, and it would ensure Britain continued “to play a key role in a globally connected industry.” The company said it has invested £80mn in new machinery since taking over the site in July 2021.
The debate comes as the government seeks to engineer an initial public offering in London — rather than New York — of Arm Holdings, a Cambridge-based semiconductor and software design company. SoftBank, the Japanese owner of Arm, had sought to sell it to Nvidia of the US only to abandon the deal in the face of regulatory opposition.
Additional reporting by Tim Bradshaw in London