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Foxconn Said to Shift Some Apple Production to Vietnam to Minimise China Risk

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By Reuters | Updated: 26 November 2020

Foxconn is moving some iPad and MacBook assembly to Vietnam from China at the request of Apple Inc, said a person with knowledge of the plan, as the US firm diversifies production to minimise the impact of a Sino-US trade war.

The development comes as the outgoing administration of US President Donald Trump encourages US firms to shift production out of China. During Trump’s tenure, the United States has targeted made-in-China electronics for higher import tariffs, and restricted supplies of components produced using US technology to Chinese firms it deems a national security risk.

Taiwanese manufacturers, wary of being caught up in the tit-for-tat trade war, have moved or are considering moving some production from China to countries such as Vietnam, Mexico and India.

Foxconn is building assembly lines for Apple’s iPad tablet and MacBook laptop at its plant in Vietnam’s northeastern Bac Giang province, to come online in the first half of 2021, the person said, declining to be identified as the plan was private.

The lines will also take some production from China, the person said, without elaborating how much production will shift.

“The move was requested by Apple,” the person said. “It wants to diversify production following the trade war.”

Foxconn said in statement: “As a matter of company policy, and for reasons of commercial sensitivity, we do not comment on any aspect of our work for any customer or their products”.

Apple did not immediately respond to a request for comment.

Taiwan’s Foxconn, formally Hon Hai Precision Industry, on Tuesday announced a $270 million (roughly Rs. 1,200 crores) investment to set up a new subsidiary called FuKang Technology – a move the person said was aimed at supporting the Vietnam expansion.

The contract manufacturer also plans to make television sets at the Vietnam plant for clients including Japan’s Sony, with the start of such production slated for late 2020 to early 2021, the person said. Sony declined to comment.

The factory will also make other electronic products such as computer keyboards, the person said.

Shifting iPad production to Vietnam will mark the first time Foxconn has assembled the device outside of China.

The firm already plans to spend up to $1 billion (roughly Rs. 7,400 crores) expanding an iPhone assembly plant in India as “strongly requested” by Apple to diversify production beyond China, people with direct knowledge of the matter told Reuters in July.

Foxconn and peers such as Pegatron are also considering building plants in Mexico, people with knowledge of the matter said, as Washington promotes near-shoring production.

Foxconn Chairman Liu Young-way in August told investors the Sino-US trade war had split the world into two, saying his firm aimed to provide “two sets of supply chains”.

Other iPad assemblers include Taiwan’s Compal Electronics and China’s BYD Electronic International.

© Thomson Reuters 2020

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Intel Floats Possibility of Licensing Chipmaking Deals but Would TSMC and Samsung Be Interested?

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By Reuters | Updated: 22 January 2021

Intel executives have raised the possibility of licensing chipmaking technology from outside firms, a move that could see it exchanging manufacturing secrets with rival Taiwan Semiconductor Manufacturing Co (TSMC) or Samsung.

Intel is one of the few remaining semiconductor firms that both designs and manufactures its own chips, but the business model has come into question in recent years as the company lost its manufacturing lead to the Taiwanese and Korean companies.

One option urged by some investors would be to outsource manufacturing. The company said, however, on Thursday that while it plans to increase its use of outside factories, the majority of its 2023 products would be made internally.

But licensing technology could help Intel avoid major investments in rivals’ factories that outsourcing deals would likely entail.

“Broadly speaking, that may mean sharing technologies that we have that they could use or leveraging technologies that others have developed that we can use as well,” outgoing Chief Executive Bob Swan told an earnings call.

That said, questions remain over how much a licensing deal would cost and whether a rival firm would even be interested.

Intel did not name companies it might license from but TSMC and Samsung are its only competitors for high-end chips.

“It seems a little weird to me that TSMC would give away to the keys to the kindgom unless there’s a sizeable payment that went with it,” said Stacy Rasgon, an analyst with Bernstein.

© Thomson Reuters 2021

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Intel to Replace CEO Bob Swan With VMware Chief Pat Gelsinger

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By Reuters | Updated: 14 January 2021

Chipmaker Intel said on Wednesday it would replace Chief Executive Officer Bob Swan with VMware Inc CEO Pat Gelsinger beginning February 15.

The company’s shares were up more than 8 percent in morning trading.

Intel, long the world leader in chip-making technology, has lost its manufacturing edge in recent years and is now debating whether to outsource some of it flagship central processor unit chips, or CPUs, slated for release in 2023. Activist investor Third Point LLC last month sent Intel’s board a letter asking it to consider whether to keep its chip design and manufacturing operations under one roof.

Gelsinger, a former Intel executive, has served as the CEO of VMware since 2012. During that time, he successfully guided the company, whose software helps companies squeeze more work out of data center servers, through the transition from privately owned data centers to public cloud providers, in part by striking a seminal deal with Amazon’s Amazon Web Services.

Gelsinger joined Intel when he was 18, and the company helped him attend Santa Clara University and Stanford University as he spent 30 years there. In a letter to Intel’s employees, Gelsinger likened the move to coming “home.”

“Having begun my career at Intel and learned at the feet of Grove, Noyce, and Moore, it’s my privilege and honour to return in this leadership capacity,” Gelsinger said in a statement. “I have tremendous regard for the company’s rich history and powerful technologies that have created the world’s digital infrastructure.”

Sources familiar with the matter told Reuters that Gelsinger had turned down the top Intel job before, and it was not immediately clear what had changed his mind.

Third Point’s Dan Loeb had sent a letter to Intel’s board of directors late last month urging the company to rein in an outflow of engineers to rival firms, though he stopped short of blaming Swan for the company’s troubles.

On January 4, Swan met with Third Point Chief Executive Dan Loeb and Intel Chairman Omar Ishrak, according to a person familiar with the matter. Loeb pushed Intel to find new executives and potential new board members and held at least one followup meeting.

VMware said it was initiating a CEO search and that Zane Rowe, the company’s chief financial officer, would serve as its interim chief after Gelsinger departs on February 12.

Intel on Wednesday also said that it expects to beat its financial forecast for the fourth quarter of 2020 and that it has made “strong progress” in addressing issues with its 7-nanometer chip manufacturing technology.

“From a credibility standpoint, he’s great – he’s probably the one at the top of most people’s list for who they would want to see,” Stacy Rasgon, an analyst at Bernstein, said of Gelsinger’s appointment.

“He had a long career there and he’s technical, so he can address both the technical issues and cultural issues. The issue is, what’s the ship look like that he’s going to be running? The next two or three years are set in stone regardless of who is there.”

Swan, a former chief financial officer from eBay, had served as Intel’s finance chief and was named its interim CEO when Brian Krzanich resigned in June 2018. Swan was made permanent chief in early 2019 after an extensive search failed to yield an external candidate.

© Thomson Reuters 2020

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Intel DG2 Graphics Chip Said to Tap New Version of TSMC 7-Nm Process

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By Reuters | Updated: 12 January 2021

Intel plans to tap Taiwan Semiconductor Manufacturing to make a second generation discrete graphics chip for personal computers that it hopes will help it combat the rise of Nvidia, two sources familiar with the matter told Reuters.

The chip, known as DG2, will be made on a new chipmaking process at TSMC that has not yet been formally named but is an enhanced version of its 7-nanometre process, the two people familiar the matter said.

Intel, long the world leader in chip-making technology, has lost its manufacturing edge in recent years and is now debating whether to outsource some of it flagship central processor unit chips, or CPUs, slated for release in 2023.

Activist investor Third Point last month sent Intel’s board a letter asking it to consider whether to keep its chip design and manufacturing operations under one roof.

Intel has long outsourced chips other than its flagship CPUs and is a major customer of TSMC, the world’s leading contract chip manufacturer. The head of Intel’s self-driving subsidiary Mobileye last month told Reuters that its next autonomous vehicle processor will be continue to be manufactured by TSMC on its 7-nanometre process.

With its graphics chips, Intel is looking to tap into the booming PC gaming market. Its DG2 chip is expected to be released late this year or in early 2022 and compete with Nvidia and AMD gaming chips that cost between $400 (roughly Rs. 29,400) and $600 roughly Rs. 44,100), the sources said.

The chip manufacturing technology for the DG2 is expected to be more advanced than the Samsung 8-nanometre process used in Nvidia’s most recent round of graphics chips released in the fall, the people said. They added it would also have a leg up on the Advanced Micro Devices graphics chips made on TSMC’s 7-nanometre process.

Intel declined to comment and TSMC did not immediately respond to a request for comment.

Intel officials last year said that it would outsource the DG2 chip but did not say which chip manufacturer had won the business or which chipmaking process it would use.

© Thomson Reuters 2020

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Lawmakers Urge US to Further Tighten Restrictions on Chinese Chipmaker SMIC

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By Reuters | Updated: 23 December 2020

Two key Republican lawmakers on Tuesday urged the Trump administration to strengthen new rules adopted Friday aimed at preventing China’s biggest chipmaker SMIC from getting access to advanced US technology.

Senator Marco Rubio and Representative Michael McCaul said the Entity List designation by the US Commerce Department was not strict enough and should be rewritten to close “dangerous loopholes that would allow nearly all sales to SMIC to continue without restriction and support the (Chinese Communist Party’s) stated goal of military preeminence.” The letter said they were concerned that without changes the rules would be “utterly ineffective in addressing this growing national security threat.”

The Commerce Department declined to comment, but Commerce Secretary Wilbur Ross said Friday the designation was a “necessary measure to ensure that China, through its national champion SMIC, is not able to leverage US technologies to enable indigenous advanced technology levels to support its destabilising military activities.”

The lawmakers are concerned because the restrictions apply only to technology “uniquely” required to produce semiconductors at 10 nanometres and below. The administration “seems to be allowing SMIC access to nearly all semiconductor manufacturing equipment,” they wrote.

The lawmakers said they were concerned the new rules were “done for show and parochial commercial interests at the expense of US national security.”

SMIC said Sunday that being put on a US trade blacklist would pose a significant adverse impact to its research and development in its 10-nanometre and more advanced chip technology, but said it did not expect the US decision to have a major negative impact on its short-term operations and finances.

© Thomson Reuters 2020

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Chinese Chipmaker SMIC Added by Trump Administration to Defence Blacklist

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By Reuters | Updated: 4 December 2020

The Trump administration on Thursday added China’s top chipmaker, SMIC, and oil giant CNOOC to a blacklist of alleged Chinese military companies, a move likely to escalate tensions with Beijing before President-elect Joe Biden takes office.

The Department of Defense designated a total of four additional companies as owned or controlled by the Chinese military, also including China Construction Technology and China International Engineering Consulting.

The move, first reported by Reuters on Sunday, brings the total number of companies blacklisted to 35. While the list did not initially trigger any penalties, a recent executive order issued by Republican President Donald Trump will prevent US investors from buying securities of the blacklisted firms starting late next year.

The Chinese Embassy in Washington referred Reuters to prior remarks made by its Foreign Ministry spokesperson that “China firmly opposes the politicisation of the relevant Chinese companies.”

China National Offshore Oil Corp (CNOOC) did not respond immediately to a request for comment.

SMIC said in a stock market statement that it was assessing the impact of its addition to the list and said investors should be aware of the investment risks. SMIC shares declined by over 2 percent on Friday before trading in the company’s Hong Kong shares was suspended, while CNOOC slipped 0.7 percent in early morning trade.

Shares of CNOOC’s listed unit CNOOC had fallen by nearly 14 percent following the Sunday report.

SMIC, which relies heavily on equipment from US suppliers, was already in Washington’s crosshairs. In September, the US Commerce Department informed some firms they needed to obtain a license before supplying goods and services to SMIC after concluding there was an “unacceptable risk” that equipment supplied to it could be used for military purposes.

The expanded blacklist is seen as part of a bid to cement Trump’s tough-on-China legacy and to box Biden, the Democratic president-elect who takes office on January 20, into hardline positions on Beijing amid bipartisan anti-China sentiment in Congress.

The measure is also part of a broader effort by Washington to target what it sees as Beijing’s efforts to enlist corporations to harness emerging civilian technologies for military purposes.

The list of “Communist Chinese Military Companies” was mandated by a 1999 law requiring the Pentagon to compile a catalog of companies “owned or controlled” by the People’s Liberation Army, but the DOD only complied it in 2020. Giants like Hikvision, China Telecom and China Mobile were added earlier this year.

In November, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by prohibiting US investors from buying securities of the blacklisted companies from November 2021.

Top US asset managers Vanguard Group and BlackRock each own about 1 percent of shares of CNOOC’s listed unit CNOOC, and together own roughly 4 percent of outstanding shares of SMIC, disclosures show.

Congress and the Trump administration have sought increasingly to curb the US market access of Chinese companies that do not comply with rules faced by American rivals, even if that means antagonising Wall Street.

On Wednesday, the US House of Representatives passed a law to kick Chinese companies off US stock exchanges if they do not fully comply with the country’s auditing rules, giving Trump one more tool to threaten Beijing with before leaving office.

© Thomson Reuters 2020

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Trump to Add Chinese Chipmaker SMIC to Defense Blacklist: Sources

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By Reuters | Updated: 30 November 2020

The Trump administration is poised to add China’s top chipmaker SMIC and national offshore oil and gas producer CNOOC to a blacklist of alleged Chinese military companies, according to a document and sources, curbing their access to US investors and escalating tensions with Beijing weeks before President-elect Joe Biden takes office.

Reuters reported earlier this month that the Department of Defense (DOD) was planning to designate four more Chinese companies as owned or controlled by the Chinese military, bringing the number of Chinese companies affected to 35. A recent executive order issued by President Donald Trump would prevent US investors from buying securities of the listed firms starting late next year.

It was not immediately clear when the new tranche, would be published in the Federal Register. But the list comprises China Construction Technology and China International Engineering Consulting, in addition to Semiconductor Manufacturing International (SMIC) and China National Offshore Oil (CNOOC), according to the document and three sources.

SMIC said it continued “to engage constructively and openly with the US government” and that its products and services were solely for civilian and commercial use. “The Company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses.”

The DOD, the Chinese embassy in Washington and CNOOC did not immediately respond to requests for comment.

SMIC, which relies heavily on equipment from US suppliers, was already in Washington’s crosshairs. In September, the US Commerce Department informed some firms that they need to obtain a license before supplying goods and services to SMIC after concluding there was an “unacceptable risk” that equipment supplied to it could be used for military purposes.

© Thomson Reuters 2020

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