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Trade war

Chinese state-backed chipmaker targets Europe amid US resistance

Innotron in talks to acquire industry's most advanced equipment from ASML

An employee services a Twinscan machine at the ASML factory in Veldhoven. The Dutch company is the world's leading provider of equipment for making computer chips.   © Reuters

TAIPEI -- Chinese chipmaker Innotron Memory, which Beijing envisions becoming a challenger to industry heavyweights like Samsung Electronics and Micron Technology, is seeking technology from top European semiconductor equipment supplier ASML as the U.S. pushes back against China's high-tech ambitions.

Innotron CEO Zhu Yiming is visiting Europe this week, the Nikkei Asian Review has learned, on the heels of Chinese Premier Li Keqiang's nine-day Eurasia trip to meet European leaders and urge more openness and partnerships there.

On Monday, Zhu is scheduled to meet the top management of the Netherlands' ASML, according to an industry source familiar with the plan. Zhu and his team will discuss with the ASML executives at the company's Veldhoven headquarters the possibility of purchasing extreme-ultraviolet lithography equipment, the industry's most advanced chip production tool -- and the costliest at $120 million each.

ASML is the exclusive maker of such advanced equipment. Innotron is also known as Hefei Changxin, or Heifei Rui-li Integrated Circuit Manufacturing.

The Chinese premier and Innotron executives' European trips highlight the country's growing tendency to look beyond the U.S. for international allies and collaboration to step up Beijing's "Made in China 2025" incentive, which aims to leapfrog key industries and boost self-sufficiency.

The domestic chip industry -- the top priority in the incentive -- has been caught in the crossfire as U.S. President Donald Trump's administration ratchets up efforts to curb China's high-tech ambitions. American authorities have strengthened export controls on advanced chip equipment, while almost all Chinese tech acquisition attempts are blocked by Washington on national security grounds.

The move also shows Innotron's zeal to close technology gaps with global chip leaders as soon as possible and to secure supplies of leading-edge tools for production amid the ongoing trade spat with the U.S.

"The Chinese company hopes to accelerate technology development in all kinds of means, while the Dutch chip equipment maker wants to secure more business and future growth," the supply chain source said.

Later this week, Zhu is scheduled to visit Belgium's IMEC, a pioneering research institute that specializes in nano-electronics and digital technology. The aim is to build research and development partnership to accelerate the company's memory chip development, a source told Nikkei. Chinese Premier Li visited the facility on Oct. 18.

"Asian and European countries, faced with new circumstances, should rise up to their responsibilities to maintain world peace while boosting development and prosperity," Li said in a speech at the Asia-Europe Meeting summit on Oct. 19. Li has visited Europe twice in less than three months and concluded his most recent trip on Oct. 20, during which he met with many key leaders, including French President Emmanuel Macron, British Prime Minister Theresa May, President Jean-Claude Juncker of European Commission, and the premiers of the Netherlands, Belgium, Italy and Greece.

Meanwhile, Chinese outbound foreign direct investment dramatically veered toward Europe from North America in the first six months of 2018, according to legal firm Baker McKenzie. Completed Chinese investments totaled $12 billion in Europe, six times more than the roughly $2 billion in North America in the period, its data shows.

However, Europe could turn cool about the Chinese enthusiasm to forge closer high-tech partnerships, as some top officials are adopting a more cautious stance on such collaborations. Germany earlier this year blocked two Chinese attempts to acquire energy company 50Hertz and engineering firm Leifeld Metal Spinning, citing concerns about national security and the hollowing-out of Germany's advanced tech industry. The U.K.'s National Cyber Security Centre also cited security concerns in a report about using Chinese telecom company Huawei Technologies's products.

Government-backed Innotron is now working on developing China's first dynamic random access memory chips, and is building a $7.2 billion facility in the eastern Chinese city of Hefei, which is set to start production by the end of 2019.

Currently, South Korea's Samsung and SK Hynix, Micron of the U.S., and Taiwan's Nanya Technology control 98% of the global market for DRAM, a widely used type of memory chip, according to research company Trendforce. China has no domestic source of such chips, and its technology is lagging far behind. DRAM is crucial for a wide range of electronic devices, including PCs, smartphones, data center servers and connected cars.

Only the world's biggest semiconductor players -- Intel, Samsung and Taiwan Semiconductor Manufacturing Co. (TSMC) -- are buying and testing the ASML's advanced EUV production gear. Looking ahead, EUV lithography equipment is expected to help chipmakers squeeze more transistors on a single chip to advance performance and push physical limits. EUV equipment is seen as a ticket to later join the winner's circle in semiconductor prowess, even though execution and technological development are even more crucial for sustainability.

China's state-backed contract chipmaker Semiconductor Manufacturing International Co., TSMC's smaller rival, also placed an order for an EUV machine this April, Nikkei first reported, right after Washington banned Chinese telecom equipment maker ZTE from using any American technology.

However, it's still quite challenging for Chinese new players like Innotron to make a dent in the DRAM market, said Sean Yang, an analyst at research company Cinno.

"Samsung, SK Hynix and Micron control almost all the important patents for DRAMs," Yang said. He added that if everything goes smoothly, Innotron could start to make an impact after 2020.

Zhu was previously founder and chairman of GigaDevice, another state-sponsored Chinese memory chip maker. Zhu holds a master's degree in electronic engineering from Stony Brook University, New York. He was also one of the professionals selected by China's Thousand Talent program, a plan rolled out by Beijing in 2008 to attract Chinese scientists and top talent with experience overseas.

Innotron has poached many engineers from SK Hynix, Micron and Nanya Technology. It also hired numerous former employees from Japanese DRAM provider Elpida Memory, which went out of business in 2012 and was later bought out by Micron.

There have long been restrictions on sales or shipments of cutting-edge chip manufacturing equipment to China. The restrictions have been justified through the Wassenaar Arrangement, a multinational voluntary export-control compliance agreement that covers the export of technologies that could have military applications. But companies can obtain exemptions from such restrictions.

ASML declined to comment on whether Innotron is interested in buying EUV systems. But the Dutch chip equipment maker told the Nikkei Asian Review that it treats all of its customers worldwide equally -- including Chinese clients. ASML also responded in a statement that it is aware that the EUV system is listed in the Wassenaar Arrangement but the Dutch company has already obtained licenses to ship the advanced production equipment to China

"Looking at China's ambitions in the IC industry, it is likely that there will be interest in EUV and we can confirm that we are compliant to the Wassenaar Agreement, so if we want to ship EUV to China, we currently have the licenses to do so," the statement said.

IMEC declined to comment on specific discussion about any company but said the research lab is open for worldwide partnerships that can strengthen the complete ecosystem in a balanced way.

IMEC already has R&D partnerships with many notable semiconductor companies worldwide, including Western Digital, TSMC, Toshiba, ADI, Globalfoundries and others. IMEC also formed a joint venture with China's SMIC, Huawei and mobile chip leader Qualcomm back in 2015.

Innotron did not respond to the Nikkei Asian Review's request for comment.

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