By Kate O'Keeffe and Eva Dou
The battle between the U.S. and China over computer-chip makers
has expanded to a new front: the companies that test the
technology.
Citing national-security concerns, a U.S. semiconductor-testing
company, Cohu Inc., is mounting a quiet campaign to derail the
planned $580 million sale of an American rival, Xcerra Corp., to a
Chinese state-backed group, according to documents reviewed by The
Wall Street Journal.
The U.S. government has previously shot down attempts by Chinese
interests to buy makers of the chip technology used in mobile
phones, military equipment and other systems. The deal for Xcerra,
which provides equipment to test chips but doesn't actually make
them, could test how far the Trump administration is willing to go
to shut China out of the sensitive sector at the heart of a trade
battle.
The U.S.'s cutting-edge semiconductor technology powers the
industries that make the country the world's most formidable
superpower, including the military, Silicon Valley and Wall Street.
As China continues its rapid development, it, too needs a top-notch
chip industry, and it has announced plans to spend $150 billion to
get it.
The effort by Cohu is aimed at blocking one deal in which its
competitor could gain a financial advantage through an influx of
Chinese money. But on a larger scale, it provides a window into the
myriad economic and national security considerations the U.S. is
juggling as it confronts a powerful new rival in the global chip
market.
Chinese officials and executives say the national security
concerns their U.S. counterparts raise are a pretext and that the
U.S. is simply trying to stave off competition.
Poway, Calif.,-based Cohu recently sent its analysis of the
risks associated with the proposed sale of Norwood, Mass.-based
Xcerra to the Chinese to the Committee on Foreign Investment in the
U.S., a multiagency panel that vets deals for national-security
concerns, according to the correspondence reviewed by the Journal.
The committee, known as CFIUS and led by the Treasury Department,
can approve the acquisition or recommend the president block
it.
The deal, announced in April, could give China access to
intellectual property that could accelerate its efforts to become a
serious player in the industry, Cohu alleges in a six-page white
paper it sent to a Treasury official handling CFIUS matters.
"If Xcerra becomes a Chinese state-owned enterprise and obtains
top-tier semiconductor companies like Qualcomm, Broadcom and Texas
Instruments as customers, it is reasonable to expect transfer of
this critical information to Chinese semiconductor companies," the
document says.
Xcerra, in a statement, said: "The allegations Cohu make are
false, as Xcerra does not possess critical [intellectual property]
from any customer." Both parties in the deal intend to cooperate
fully with CFIUS "to address any potential national security
interests," Xcerra said.
Cohu didn't respond to requests for comment.
A Treasury spokesman said the agency doesn't comment on whether
any particular transaction is being reviewed by CFIUS.
The deal's primary financier is a $20 billion Chinese
government-controlled fund called the China Integrated Circuit
Industry Investment Fund Co., known locally as "the Big Fund." A
representative declined to comment.
Cohu's June 2 paper also says a sale of Xcerra could disrupt the
semiconductor supply chain and lead to U.S. job losses if the
company uses subsidies from its new owner to improperly undercut
U.S. rivals.
Some U.S. officials warn that, for example, China could use
state subsidies to drive U.S. chip firms out of business and
eventually dominate the industry, leaving the U.S. and its military
reliant on Chinese chips. Others, though, say it is critical for
CFIUS to focus solely on traditional national-security matters, and
that taking economic concerns into account would be wrongly
protectionist. President Donald Trump has ramped up trade pressure
on China, directing aides on Monday to begin a study of whether to
launch a formal investigation into whether Beijing is unfairly
acquiring patents and licenses from U.S. firms.
U.S. scrutiny of China's chip ambitions and Chinese deals
generally has been building. In December, after a CFIUS
investigation, then-President Barack Obama blocked a Chinese
investment fund's purchase of German semiconductor-equipment
supplier Aixtron SE, which has U.S. assets. In January, an Obama
administration advisory panel warned of economic and military
dangers posed by China's 10-year, $150 billion effort to build a
cutting-edge semiconductor sector.
During the Trump administration, CFIUS has thrown a number of
high-profile takeover bids by Chinese firms into question, and
lawmakers and the Treasury are weighing changes that could make the
review process even tougher.
Some say the fight has become overly politicized. Ray Bingham, a
partner at Canyon Bridge Capital Partners Inc., a Palo Alto,
Calif.-registered private-equity firm funded by the Chinese
government, said in a recent interview that politics "more than
anything" was behind CFIUS's scrutiny of his firm's $1.3 billion
attempt to buy Lattice Semiconductor Corp., a U.S. firm. Canyon
Bridge's structure raised red flags with a bipartisan group of 22
House lawmakers led by Rep. Robert Pittenger (R., N.C.), who
accused the firm of initially trying to obscure its state backing,
which it has denied.
Cohu, in a follow-up letter dated Aug. 8, urged CFIUS to
scrutinize the Chinese financing behind Xcerra's deal following
Xcerra's Aug. 7 disclosure to the Securities and Exchange
Commission that it had changed.
Under the new deal structure, local government funds from
China's Fujian and Hubei provinces also will help finance the
purchase, Chinese corporate records show.
Xcerra said in its statement that, according to the terms of the
deal, its buyer had a right to syndicate its financing. "This
change had nothing to do with filing with the Committee on Foreign
Investment in the United States," it said.
Write to Eva Dou at eva.dou@wsj.com
(END) Dow Jones Newswires
August 15, 2017 17:24 ET (21:24 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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