Hi everyone, this is Lauly writing from the heat of Taipei. I’m sending this week’s #techAsia from a traditional breakfast restaurant without air conditioning. It’s across the street from one of iPhone assembler Foxconn’s plants in New Taipei City, where I just attended an Apple component supplier’s annual general meeting.
The AGM season has been a great chance to take the rising temperature of Taiwan’s hundreds of tech suppliers as they grapple with world economic turmoil. My colleague Cheng Ting-Fang and I have attended dozens of such gatherings over the past month and we kept hearing one big fear: global economic slowdown stoked by inflation, Chinese Covid lockdowns and their aftermath, and war in Ukraine.
The economic woes have weakened consumer demand, leaving the PC industry with mounting piles of unsold stock. Chinese smartphone-makers Xiaomi, Oppo, and Vivo have likewise slashed their production forecasts. Samsung, the world’s largest smartphone and TV maker, has asked suppliers to halt shipments while it reviews its swelling inventories, as Nikkei Asia reported exclusively last week.
We highlight below how companies across the tech industry are facing soaring production costs due to surging prices of materials, metals, chemicals, and labour costs.
We will work through the sweltering Taipei summer to give you the answers to the question on everyone’s minds: which will be the next tech businesses to take a big hit?
Yangtze shoots the rapids
China’s Yangtze Memory is closing the technology gap on international rivals as it leads Beijing’s push to build a homegrown semiconductor industry and end its reliance on foreign chips, writes Nikkei Asia’s Cheng Ting-Fang.
The Wuhan based-company has already reached full capacity at a first plant that now churns out 100,000 wafers a month. About two-fifth of these are on 128-layer 3D NAND flash memories — only about one generation behind global leaders Samsung and Micron.
NAND flash memories are key storage components in electronic devices including smartphones, PCs, servers and connected cars.
The ramp-up has put Yangtze Memory on the chip production world map dominated until now by Samsung, Micron, SK Hynix, Kioxia and Western Digital.
The Chinese company now plans to bring production online at a second plant as early as the end of 2022 to further increase its global market share. That has already more than tripled from 1.3 per cent in 2019 to nearly five per cent in 2021, Counterpoint Research data shows.
Yangtze Memory could even become an Apple supplier soon, in what would be a big diversification of a client base still dominated by local storage makers. Apple has tested Yangtze’s flash memories and could place its first order in “small quantities” as soon as this year, sources told Nikkei Asia.
“Believe me, Yangtze Memory is doing better than most outsiders think,” a veteran chip industry executive who has worked with Samsung, Intel and Micron told Nikkei Asia. “It’s the best example that China can really build a viable player from scratch after many years even under the threat of geopolitical tension. It is still small . . . but it could become somebody in years to come.”
The Chinese chipmaker was founded in 2016 and has enjoyed strong support from Beijing. It has also strived to keep a low international profile to avoid becoming a target of the kind of US sanctions that have hit Chinese peers including Semiconductor Manufacturing International Co. and Huawei.
Every material you can think of in the semiconductor industry has become much more expensive these days.
Costs of wafers, chemicals, metals and gases have soared because of supply shortages and logistical problems driven by the Covid-19 pandemic and war in Ukraine. Booming demand for chips for applications such as 5G connectivity and electric vehicles has further stoked the trend.
Some essential materials have more than doubled in price over the past two years, according to a detailed analysis by Nikkei Asia’s Cheng Ting-Fang and Lauly Li.
Vincent Liu, an industry veteran and president of Taiwan’s LCY Chemical, a supplier to global chipmakers, issued a warning about the consequences of the input cost rises: “Those could eventually be passed on to consumers.”
Musk’s China reversal
American tech titans have always had a love-hate relationship with the Chinese Communist party, the Financial Times’ Edward White and Eleanor Olcott write.
From Bill Gates to Larry Page and Steve Jobs to Mark Zuckerberg, each has faced uncomfortable compromises, unpopular concessions or moments of uncontainable crisis as they sought to carve out chunks of the world’s factory floor and biggest consumer market.
Now Elon Musk, the richest man on earth and boss of Tesla and SpaceX, has landed in the crosshairs of Beijing’s national security and data hawks.
Since Russia’s invasion of Ukraine in late February, Musk’s commercial rocket and satellite business SpaceX has been sending Starlink satellites to support the besieged country.
But Chinese military and security experts have attacked the Starlink programme over its alleged links to the American military. Chinese officials fear a scenario where thousands of Musk’s satellites are deployed to surveil China — or, even more sensitively, support Taiwan. SpaceX hasn’t commented on the concerns.
Data collection is also a key problem for Musk. Tesla has been successful in China. But Beijing is cracking down on cross-border data flows and data collection from individuals and locations near military or politically sensitive sites.
Tesla has already promised to store information collected in China in local data centres — a significant blow to the global data gathering efforts that are critical to the company’s research and development.
The challenges mark a stunning shift in favour in China for the 50-year-old Musk, where he has inspired a cult following as the “Silicon Valley Iron Man”.
Shanghai’s lockdown nightmare
The Chinese government finally lifted its draconian two-month Covid lockdown in Shanghai a few weeks ago, but the scars on both citizens and businesses will last much longer, write Nikkei Asia’s Cissy Zhou, Lauly Li, Cheng Ting-Fang and CK Tan.
The Greater Shanghai area, which includes the nearby cities of Kunshan and Suzhou in Jiangsu Province, is one of the world’s biggest electronics manufacturing hubs. Half of Apple’s top 200 suppliers have manufacturing facilities in the region, where hundreds of thousands of workers keep the industry running.
But China’s status as a supply chain hub is being severely tested by Beijing’s “zero-Covid” policy. The management and wellbeing of tens of thousands of workers suffering the psychological trauma of isolation became a huge challenge for many companies.
An executive at an Apple supplier, who asked to be known by the pseudonym Tony Tseng, told Nikkei Asia: “The most terrifying thing about this Omicron [variant] wave isn’t the virus but the fearful atmosphere spreading among our employees and workers.”
He said more than 40 of the company’s 25,000 workers showed signs of mental disorder during the lockdown. One of them even started to claim he was President Xi Jinping, breaking equipment in the factory and becoming aggressive toward nurses, he added.
Tseng said his top priority was not restarting production — but the psychological health of the employees. “We have to take care of them, and the bottom line is that we can’t have anyone die because of this pressure.”
It is a stark reminder that the costs of “zero-Covid” go much deeper than the disruption during the Shanghai lockdown itself.
TSMC says it will make ultra-advanced 2nm chips by 2025 (Nikkei Asia)
Alibaba seeks to crack South Asia on path to global expansion (FT)
‘Let it rot’: China’s tech workers struggle to find jobs (FT)
Robot boats gobble plastic waste from Vietnam to Malaysia (Nikkei Asia)
NetEase shares fall after nationalist backlash in China over Winnie the Pooh post (FT)
Tencent to open third data center in Japan on gaming demand (Nikkei Asia)
Workers at embattled crypto operator Terraform Labs put on South Korea’s no-fly list (FT)
Influencers abandon TikTok Shop in latest blow to UK ecommerce venture (FT)
Sony steps up image sensor tech, targeting 60% market share (Nikkei Asia)
ByteDance to shut Shanghai game development studio (Nikkei Asia)
#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.
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