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Security concerns apparently triggered the government's U-turn over Newport Wafer Fab, but what do they achieve?
What the government gives, the government takes away. Newport Wafer Fab (NWF) was born in government and could well end up being hobbled by it, albeit by an administration of a completely different kind. The decision by business secretary Grant Shapps after just a few weeks in the job to force Nexperia to shed almost 90 per cent of its interest in the south Wales fab comes at a time when finding a buyer with the resources to maintain the level of investment promised by the owner, which is Chinese-owned but Netherlands-based, is a lot trickier than it was just a matter of months ago or indeed 16 months ago when the acquisition was waved through. However, Shapps was quick to argue in parliament that the act that allowed this decision only passed in January.
“From what we see, it looks like the government assumes that the site will be bought easily by somebody else who's going to retain the activities and the jobs, that the site will then supply UK businesses and be up and running overnight on the new owners. And I think that's categorically not the case. And anyone who has been in semiconductors for a while would be able to understand and explain that,” said Toni Versluijs, senior vice president and general manager of the Nexperia discrete semiconductors business, in an interview with the BBC after the decision was announced.
After more than a year of shortages, the semiconductor industry is experiencing one of many downturns. And these downturns tend to be bad for the older, smaller fab operations of which NWF, renamed by its current owner to Nexperia Newport, is a member. When the Labour administration of the late 1970s decided the UK needed to buy into the white heat of chipmaking, the plant was built as a leading-edge producer of memories and processors. But that was 40 years ago and, today, older fabs need to find other products to make it stay in business because those digital goods decamped to more advanced facilities long ago, though design of those kinds of devices continues in the cluster in the south west of the UK that developed around the Inmos business.
NWF chose the field of compound semiconductors, aimed at applications such as RF communications and power converters. The former market is the one that attracted Nexperia, originally a part of Dutch consumer giant Philips Electronics, to the fab. Though the company wound up with a brand name originally chosen by its parent for digital-TV chips, Nexperia’s core business now lies in the analogue components that sit between these much larger devices. Having been a long-term customer of NWF as a foundry, it finally bought the entire plant in the summer of 2021. It has since claimed to have spent £160m on upgrades there and in another plant near Manchester as part of a £600m programme across its factories around the world to support an expansion into the power semiconductors that will be needed for cellular basestations and electric vehicles, two markets that have helped bring about a renaissance in compound semiconductors. Adjusted for inflation, the value of those upgrades works out at about half the amount the UK government paid to set up Inmos and the Newport fab in the first place.
Versluijs claimed “the government is hiding its industrial policy behind invented national-security concerns. Nexperia presented far-reaching remedies for the so-called concerns but even they were ignored.”
Ruth Jones, MP for Newport West, pointed out after Shapps’ statement in the Commons that the 2021 acquisition had already been cleared by two security reviews before the about-turn in mid-November. The published statement from Shapps suggested there were two issues that led to the decision to force Nexperia. One was the “potential reintroduction of compound semiconductor activities at the Newport site and the potential for those activities to undermine UK capabilities”. The other was the connection that NWF has to a local cluster of compound-semiconductor R&D, which itself connects to the Compound Semiconductor Applications Catapult (CSC), one of the UK’s specialist R&D networks, which has its main office two miles away from the fab. Nexperia’s much longer ownership of a Stockport fab, that dates back to the days of Mullard Electronics, remains apparently untouched by these national-security concerns. That is a fab that remains, for the moment, silicon-only.
As part of Infineon Technologies, NWF had made gallium nitride (GaN) on silicon devices but the German company switched production to another plant before NWF organised a buyout in 2017. The first passage in Shapps’ statement appears to relate to a project with CSC to develop a new GaN process for the 200mm wafers announced shortly before Nexperia’s acquisition and which was intended to help support pilot manufacturing for nearby startups such as Rockley Photonics. In the end, Rockley was forced to find supplies in the US as Nexperia focused attention at NWF on its own supply requirements.
In the meantime, the US government has become progressively more exercised about gallium and the trade secrets that enable its use in electronics leaking to producers controlled by the Chinese Communist Party. A number of briefings by security analysts pointed the finger at academic collaborations between US and Chinese researchers. One of the problems that faces producers of compound semiconductors is that they rely on making largely defect-free crystals out of materials with quite different lattices. Without careful processing, you wind up with a lot of cracks and chips that don’t work, though breakthroughs in selectively introducing strain into silicon crystals in the early 2000s, and which have contributed massively to Moore’s Law since then, made it far more practical to deposit various alloys of gallium and other metals onto silicon wafers. But there’s a lot of intellectual property in turning the theory into viable processes and this is what the US government is now keen to avoid falling into Chinese hands.
Having blocked Chinese access to tools that would let manufacturers in the country make the most advanced silicon chips, the US administration is trying to prevent knowhow into using more obscure materials making it to Beijing. In the summer, the US Bureau of Industry and Security (BIS) issued a ruling that identified gallium oxide as an “emerging and foundational” technology “essential to the security” of the country. Right now, gallium oxide is a promising but largely unproven material that might supplant gallium nitride in future power semiconductors. BIS has also taken aim at diamond, silicon carbide and gallium nitride, mainly for their potential to be used in military hardware. All of them weather high temperatures better than pure silicon though gallium nitride is arguably less robust than the carbon-based materials.
Gallium seems to have become a concern because China today is responsible for more than 90 per cent of its production. It is not difficult to paint scenarios where a country with such a controlling stake in a material limits access to it to others while its own industry forges ahead. That would, however, be an illusion. As the 32nd most abundant element in the Earth’s crust, gallium is not all that rare. It’s just tedious to extract from the aluminium-rich ores where it turns up and it just happens to be cheaper to buy it from China. Were Xi Jinping minded to choke off supplies to the West, the German Institute for Rare Earths and Metals has pointed out that miners elsewhere would make up for the shortfall – though possibly at a higher price.
Then there is the question of knowhow. On the one hand, it is easy to see how a bureaucrat in China may lean on Nexperia’s owners to provide chapter and verse on the epitaxial growth of GaN on silicon and have that transferred to local fabs. On the other, though a nation state may not want to give a potential enemy a leg-up, that horse may have bolted long ago. It is interesting that the US has blocked access to design tools to build the next generation of logic transistors but the simulation software that can be used to try out different forms of the kind of gallium nitride or silicon carbide that will go into power devices remains untouched.
Preventing a company with connections to the CCP direct access to a technology suddenly considered strategic by the US may help with diplomacy west of the Atlantic Ocean and in showing some of the Conservative Party’s more hawkish members it means business. But as a way of keeping GaN knowhow from being picked up by Beijing, it is like gaffer-taping a sieve over a leaking pipe.
Nexperia itself has been working on GaN-on-silicon technology for a while and will doubtless find another way to test designs and manufacture devices at other foundries if it finds itself locked out of the fruits of the NWF-CSC project – and it is not clear that the company will be banned from using the fab as a foundry as it did before the acquisition, assuming the plant finds a buyer and stays open instead of being stripped for its parts. Back in China, Huawei and other companies had filed thousands of patents on gallium-based technologies well before Nexperia’s bid for NWF was announced.
The actions that may do more to prevent China from gaining dominance in these technologies may well lie more in Xi’s hands than anyone. In a society that has gone back to prizing loyalty over competence, China risks following Russia. Without much hindrance from western governments, Putin managed to hobble his own technology sector through corruption and patronage to the point where it has just a handful of badly outdated fabs. Despite a succession of five-year plans that stressed the importance of chipmaking, China was some way behind its neighbours before the US clamped down on a wider range of important electronics technologies.
Shanghai-based SMIC has succeeded in using what it can lay its hands on to make some chips that seem to qualify as equivalent to the 10nm parts that were introduced around five years ago by Korean and Taiwanese fabs. But partially state-owned SMIC is an outlier. When Richard Chang started SMIC, and incorporated the business in the Cayman Islands, the CCP’s favoured chipmaker was Grace Semiconductor, founded by the son of former Chinese President Jiang Zemin, with grandiose plans for fabs just outside Beijing. Now part of Hua Hong Group, it remains significantly behind SMIC in terms of process technologies with processes that were considered leading edge back in the early 2010s. Xi’s willingness to go after China’s corporate managers is unlikely to see them want to take more chances with technology than they have to.
In this environment, the UK government may have taken a sledgehammer to a nut and wound up aiming at the wrong one. It is possible that one of the consortia in the running to buy NWF before Nexperia’s bid came through may put another offer together and even bring the fab back as a full member of the CSC’s cluster. But in a tightening bond market and less optimistic chip market, it is far from certain. What is far less likely is that today’s administration will echo the actions of a Labour government in the 1970s and directly finance the fab’s continuing operation in order to maintain a healthier cluster and even deliver a functioning pilot line for innovation.
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