Government Nationalises One Of UK’s Last Semiconductor Factories

The government has acquired one of the UK’s last remaining chip factories, after it deemed it vital to the British defence sector.

The government announced that the semiconductor factory in Newton Aycliffe, County Durham, has been acquired by the Ministry of Defence (MoD) from its previous parent, US-based Coherent, and will be named Octric Semiconductors UK.

The Daily Telegraph meanwhile reported that the deal was thought to be worth £20 million. Coherent had reportedly warned the 310,000 sq ft site was at risk of being closed down or sold after Apple had dropped the business as a supplier, removing a key slice of its revenues.

Gallium arsenide semiconductors

The MoD however has acquired the location, and Defence Secretary John Healey visited the site on Friday.

The factory is said to be the only secure facility in the UK with the skills and capability to manufacture gallium arsenide semiconductors.

These types of specialist semiconductors are used in a number of military platforms, including to boost fighter jet capabilities.

The Telegraph stated the factory has supplied vital components for British military platforms, including radar power amplifiers for the RAF’s Typhoon fighters.

The government said “this acquisition will not only safeguard the future of the facility, which is critical to the defence supply chain and major military programmes and exports, but also secures up to 100 skilled jobs in the North East.”

It said that “semiconductors are vitally important for the modern world we live in, being an essential component for the functioning of almost every electronic device we use, from phones and computers to ventilators and power stations. The importance of semiconductors to military applications means the technology can allow the military to fill the gaps to support their future needs.”

The government also said that the acquisition will also boost UK defence industrial capacity and exports, as the government intends to invest in the company over the coming years.

“Semiconductors are at the forefront of the technology we rely upon today, and will be crucial in securing our military’s capabilities for tomorrow,” said Defence Secretary John Healey on his visit to the site.

“This acquisition is a clear signal that our government will back British defence production,” said Healey. “We’ll protect and grow our UK Defence supply chain, supporting North East jobs, safeguarding crucial tech for our Armed Forces and boosting our national security.”

Strategic interests

The nationalisation of a commercial factory marks a rare intervention by the MoD to secure a critical supplier, the Telegraph noted.

It pointed to the example of the previous Government’s decision in 2021 to nationalise Sheffield Forgemasters, which makes critical steel components for Britain’s nuclear-powered submarine fleet, following long-running financial struggles that had triggered approaches from Chinese rivals.

And this is not the first time that losing a contract from Apple has proved to be difficult for a supplier.

This was evidenced when British chip designer Imagination Technologies had placed the ‘for sale’ above its doors in 2017, after a chip licensing row with Apple threatened its survival.

Imagination Technologies lost 70 percent of its value in April 2017, when it revealed that Apple was to stop paying it royalties for the graphics technology used in iPhones, iPads, Apple Watches and other mobile devices.

Apple was Imagination’s largest customer, and accounted for around half its annual revenue. It was also an 8 percent shareholder, but denied any intention to buy the British firm.

Imagination was eventually sold to Canyon Bridge Capital Partners – a private equity fund based in Beijing that is ultimately owned by the Chinese government.