How did the situation around Nexperia get so explosive? In the semiconductor industry everything seems to be focused on investing in R&D, factories, and AI. But Nexperia forgot to invest in its 'political capital'. And it's now up to the Dutch court and the caretaker government to clean up the mess. Is there still a way out?
It's not often that Dutch news makes headlines around the world. But this week the 'seizure' of chip manufacturer Nexperia by the Dutch government did just that (more on the details of the seizure later). Everyone can pick their favorite topic from this news extravaganza.
Behind the Dutch dykes we like to focus on the gossip side. On the Chinese CEO of Nexperia, Zhang Xuezheng, for example. Who wanted Nexperia to order $200 million of wafers from one of his other (apparently cash strapped) companies WSS, while Nexperia only needed $70 to $80 million worth of wafers. The rest of the wafers would be shelved and later tossed in the trash bin. And on how Zhang Xuezheng apparently tried to install his puppets to run the payments of Nexperia and how he tried to fire any director who opposed that move.
The English speaking media focusses on how the Netherlands was pressured by the US to get rid of the CEO, because he was Chinese. In China, the Netherlands is blamed for succumbing to US pressure. And for undermining the liberal free trade system that it says it wants to uphold.
But lets zoom out to see what really happened here.
Europe's most important semiconductor cluster
First of all, the Netherlands has the most important semiconductor industry in Europe. Of course there is ASML, which recently became Europe's most valuable company. But there are also many other important semiconductor companies, like NXP and ASM. And lets not forget less well known but crucial suppliers to ASML like VDL, NTS Group, Aalberts and Neways.
The Netherlands is especially good in making semiconductor equipment(parts) that are used in chip factories (see the orange dots in the infographic above). ASML's EUV-machine is crucial for making the most advanced (AI) chips in the world. Under pressure from the US, the Netherlands forbade ASML to export these machines to China.
This didn't exactly win friends in China. But on the other hand the US chip war against China did make that country hoard any chip making tools they could get their hands on. That made China ASML's biggest customer last year, buying op less advanced machines and surpassing traditional big customers like democratic east Asian Taiwan and South Korea.
US-China decoupling let to a more intense Chinese-Netherlands bond.
Chinese-Netherlands chip bonds
Many Dutch semiconductor companies are still Dutch owned, they are either listed on a public exchange, family owned, or founder owned. Chinese companies bought a few Dutch semiconductor companies, mostly in the chip design and production side of the industry. Companies like Nexperia (bought in 2016) and Ampleon (2015), both spin offs of NXP, itself a spin off from Philips.
This intermingling between Chinese and Dutch companies used to be fine for the Netherlands. Europe got left behind in the global chip race, so any bonds with winners in the field were welcome. Europe lacks the R&D, factories and capital to really compete in this field. But with geopolitical tensions rising, something else became important too: keeping politicians and government happy, or at least not provoke them. And this is what Nexperia has seemingly neglected the past year.
Dutch or Chinese?
Nexperia is a Dutch company, but only 400 of its 12.500 employees work here. It has a Chinese owner, Wingtech. And Wingtechs major private shareholder (15% stake), Zhang Xuezheng, is (or was, until the court intervened) also Nexperia's CEO. Nexperia has factories in Germany, the UK, Malaysia, the Philippines and China. But most of the more than 100 billion chips it produces annually, are finished in China.
So is this really a Dutch company, or is it actually Chinese? That question came up more and more for Nexperia. It was very relevant for Nexperia's trade partners because of the increasingly strict US export controls. It became such a hot issue, that at the end of 2023 Nexperia asked the Dutch Ministery of Economic Affairs for help. Could they vouche that Nexperia was Dutch in diplomatic and economic circles?
Selling Nexperia was an option
Yes, the Ministry was glad to help, but only if they truly believed the company was indeed Dutch enough. Nexperia - with a board comprising of western and Chinese members - offered a few solutions. For example inviting a western minority shareholder and eventually going public via an IPO. And also installing a two tier board for more independent oversight.
In the end however, Nexperia did non of these things. But the pressure for taking action was building. At the end of 2024 Wingtech was added to the 'US entity list', restricting its trade partners from doing business with it. Because Nexperia was a fully owned daughter company, it to could easily become effected. The Dutch Ministry of foreign affair asked the Americans in june how worried they should be about Nexperia being included in the US Entity List. The Americans didn't see any progress with Nexperia becoming less Chinese, so they said it didn't look good, especially not with the Chinese owner also being the CEO.
Crucial September
In september, things got to a head. Three things happened. Zhang Xuezheng gave new people the right to make payments and revoked that permission from the cfo and others. The chief legal officer that objected to that, was fired, as was the CFO a few days later. This - in combination with the strange order earlier of $200 million worth of wafers - made the Ministry of Economic Affairs interfere. On the 30th of september it used a never before used emergency law so seize goods - not the company itself! - that are deemed crucial for national emergencies. When reading the law you get a sense it was meant to prevent cheese from being exported in case of food shortages, or weapons in case of an impending war. Not chips, or intellectual property.
On that same day, the US decided that companies that are at least 50% owned by companies on the US Entities List, would also be subjected to export controls. This included Nexperia and gave the company only 60 days to plead for an exemption. It appeared far fetched for Nexperia to get such an exemption, given that it had taken almost no action to become more Dutch and less Chinese (the only concrete action it undertook, was stripping Zhang Xuezhengs sister of her board seat at Nexperia). This risked a full stop from many suppliers doing business with Nexperia. In itself that would indeed have risked the supply of chips to the Netherlands, altough the Ministry explicitly says it made its decision to invoke its emergeny powers independent from the US decision to include Nexperia on the US Entities List.
Dutch government didn't seize Nexperia, the court did
With the emergency law invoked, the Dutch caretaker Minister of Economic Affairs Vincent Karremans now has a hold over Nexperia, but he did not seize the company itself. That was done by a court. In early October it found Zhang Xuezheng's behaviour 'bordering on recklessness' and it was afraid he didn't act in Nexperia's best interest when ordering the $200 million of wafers from his own company. These facts let the court to the decision to strip Zhang Xuezheng of his title and to temporarily put all Nexperia shares except one in a separate entity with a court appointed director to prevent interference from Wingtech.
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The charismatic Karremans became Minister in june, after the governing coalition fell apart and some Ministers quit. As caretaker Minister he is not supposted to do more than 'mind the store', but the former startup up founder (Magnet.me) finds that difficult and proves very active. He is also seen as a potential successor to lead the liberal VVD, which under its current leader is performing poorly in the polls. The elections take place on the 29th of October.
Details of the exact grounds for Karremans to invoke the emergency law are still not publicly known. Was there indeed a risk that a physical chip shortage was imminent (maybe because of inclusion in the US Entities List), or was there a threat that chip production or IP would be shipped of to China? Thats difficult to assess from the outside. That makes it difficult to judge the correctness of the move. The court left it up to the Nexperia board to decide whether they want to appeal the move.
Inevitable crunch between US and China
What is known is that Nexperia's lack of action made it almost inevitable that it would be included in the US Entities List and therefore be shut of from its supplies. CEO Zhang Xuezheng's strange actions made it equaly inevitable that the court would cut the ties between Nexperia and him and Wingtech, to protect the Dutch company. The decision of the court and the action of the Minister are in foreign media blurred into the Dutch government 'seizing' Nexperia. That in turn, was reason for China to prohibit Nexperia from exporting its chips. Most of Nexperia chips are finished in China, which makes this prohibition bite very hard.
Because of Nexperia's negligence, it would either be cut of from its suppliers by the US government, or from its customers by the Chinese government. It is now up to the Dutch government, the court appointed director and other remaining Nexperia board members to fix this problem. At stake is not just the future of Nexperia, but also of the Dutch semiconductor cluster - Europe's most important - which already had to walk on eggshells in the US-China chip war.
Whats next?
Whether a solution is found, probably depends at least in part on how the broader US-China trade war will develop that flared up again two weeks ago. Now that the court put a distance between Nexperia and its owner, the Dutch government might be able to terminate its own emergency power over Nexperia, maybe relieving the diplomatic pressure.
Given that Nexperia is now effectively on the US Entities List, it is likely it won't have a future as a purely Chinese owned company. The Nexperia board itself previously offered that it could sell a minority stake and do an IPO, suggesting that owning Nexperia is not seen as vital to the Chinese. In theory, this gives Nexperia an exit out of this nasty situation. Maybe Karremans will not only have to use his diplomatic skills, but also his start up founder skills in finding investors to put together a consortium that can buy up Nexperia.
The Netherlands first became caught up in the US-China chip war because of ASML's unique technology that made it vital for the production of the most advanced chips. But the Netherlands now being squeezed again between the two super powers is not due to its business' success, but do to Nexperias neglicence to adapt to more dangerous geopolitical times.
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