MoD steps in to save struggling microchip factory

The government has stepped in to nationalise a struggling microchip factory involved in military projects to secure “critical” domestic supply amid concerns that the site could be closed.
The Ministry of Defence has acquired the facility in Co Durham from Coherent Corp, a New York-listed group, which had warned this year about the plant’s viability. The latest intervention by ministers in the UK’s nascent semiconductor industry will secure up to 100 jobs.
The “strategic investment” in the northeast of England, understood to be valued at about £20 million, is designed to secure a “crucial” defence supply chain, important military programmes and exports. It coincided with a visit to the site from John Healey, the defence secretary.
“Semiconductors are at the forefront of the technology we rely upon today and will be crucial in securing our military’s capabilities for tomorrow,” Healey said.
The defence ministry said that the 310,000 sq ft plant at Newton Aycliffe was the only secure facility in Britain with the skills and capability to make gallium arsenide semiconductors, a type of specialist semiconductor used in several military platforms, including to boost fighter jet capabilities.
The acquisition is the latest intervention by Westminster in an industry in which the Conservative government was criticised for long delays in producing a strategy.
Last year the previous government vowed to invest up to £1 billion in the semiconductor industry over the next decade and in March it approved the sale of Newport Wafer Fab, the computer chip manufacturer, to Vishay Intertechnology, an American semiconductor business, after a review under the National Security and Investment Act.
Semiconductors have become an essential part of electronic devices, from phones to power stations to the armed forces, as well as for fast-emerging technologies such as artificial intelligence.
The factory, situated at Aycliffe Business Park, has been struggling for months after losing a key customer, believed to be Apple.
Recent accounts for the site, filed by a UK subsidiary of Coherent for the year to the end of June 2023, say that with the “growing complexity of consumer electronics, such as smartphones and tablets and the advance of new technologies like electric vehicles and 5G mobile infrastructure, the market for compound semiconductor based devices is rapidly growing”. However, they add that the supply of products to its main customer ended at the end of the 2023 financial year, “putting the future of the site at risk”.
The accounts say that “this places the ongoing viability of the business in doubt” and that a strategic review was launched, while issuing “last-time buy notices” to its other main customer.
Jim Anderson, the chief executive of Coherent, said that the divestment would allow the Pittsburgh-based company “to focus our investment and capital on the areas of greatest long-term growth and profitability for the company”.
After the acquisition the company behind the site will be renamed Octric Semiconductors UK.