Chinese owned semiconductor company Nexperia has installed two of its directors on the board of Newport Wafer Fab, one of Britain’s largest microchip factories, sparking concerns that it is a precursor to a stealth takeover.

Nexperia is headquartered in the Netherlands but is majority-owned by Chinese company Wingtech, which manufactures smartphone parts for Chinese companies such as Huawei and Xiaomi.

It placed two of its directors on Newport Wafer Fab’s (NWF) board following a “contract dispute”. Verdict has contacted NWF to ask the nature of this contract dispute but did not receive a reply at the time of publication.

NWF has written to the UK’s business secretary Kwasi Kwarteng asking him to block the move but he has reportedly refused because the matter is not deemed to be of national security concern. The letter was first reported by The Times.

Nexperia is a major shareholder in NWF, which has capacity to make 32,000 compound semiconductor wafers per month at its factory in south Wales.

A Nexperia spokesperson told Verdict: “Nexperia is the second-largest shareholder in Newport Wafer Fab since 2019 and has contractual rights to appoint [the majority of the] board members in defined circumstances.”

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The spokesperson added that Nexperia can’t comment on the “rumour” of NWF’s letter.

A UK government spokesperson told Verdict that it is “aware of the potential takeover of Newport Wafer Fab by Nexperia, and the government has been in close contact with NWF throughout.

The spokesperson added: “The UK government does not consider it appropriate to intervene at the current time, but continues to monitor the situation closely, and will not hesitate to use our powers should the situation change.”

The UK government has previously provided funding to NWF via a fund for South Wales’ compound semiconductor cluster.

The ongoing chip shortage – caused by a perfect storm of Covid-19, severe weather and factory fires – has underscored the strategic value of semiconductor companies. Most of the world’s semiconductor manufacturing takes place in Taiwan, South Korea, the US and China.

Last year Imagination chief technical officer John Rayfield quit the chip developer after China Reform Holdings moved to take control of the business.

And US graphics processing unit designer Nvidia’s $40bn acquisition of chip designer ARM Holdings faces intense scrutiny from antitrust regulators. This includes a UK government probe on “national security grounds”.

Tom Tugendhat, chair of the Foreign Affairs Committee, said via Twitter: “Protecting out tech future is about defending out chipmakers. That’s what we need the National Security and Investment Bill to do. We need to see the powers used when needed.”

In November 2020 the UK introduced the National Security and Investment Bill to grant ministers additional powers to intervene in merger and acquisitions on national security grounds. These powers were watered down in April this year when the government raised the threshold for which deals face scrutiny from 15% foreign investment to 25%.

The bill was granted royal assent on 29 April, which means it is now formally law – although not yet in force. In April the government said it expects to start enforcing the rules “towards the end of this year”. The new law has retroactive powers that can be applied to qualifying transactions that took place from 12 November 2020.

At the time of the bill becoming law, Kwarteng said: “We’re sending a crystal-clear message to overseas investors: the UK is open for business, but if you seek to threaten the safety of the British people we will move to protect our interests.”

NFW was formed in 2017 after German chip company Infineon sold it to a newly formed private company called Neptune 6. One of the directors at Neptune 6 is Drew Nelson, founder and departing CEO of public semiconductor company IQE.

Wingtech acquired Nexperia for $3.53bn in 2018.