The coveted and highly specialized software tool, known by
its initials of OPC, is used in the design of many microchips and is crucial to
the design of advanced chips.
The production of advanced chips is one of the most
contentious technological struggles now dividing the United States and China as
they vie for economic and military supremacy. Washington is trying to curb
China's access to sensitive microchip design tools.
The strategy behind the startup, dubbed SEIDA, shows why
that containment effort is so challenging.
Before becoming chief executive of SEIDA, Liguo
"Recoo" Zhang had lived in the United States long enough to secure
permanent residency and purchase a Silicon Valley home, according to people
familiar with his career and public records reviewed by Reuters.
He was employed by Siemens EDA, a U.S. unit of German
industrial giant Siemens AG that dominates the market in China for the very
technology SEIDA told investors it planned to sell there. At least three other
Chinese-born colleagues from Siemens EDA joined Zhang at SEIDA.
In a 2022 business-plan presentation prepared for investors,
SEIDA called OPC "indispensable technology" and said it would offer
the tool by early 2024. A Chinese version of the product, SEIDA said, would
"break through the foreign monopoly," helping China become
self-reliant in chip technology. SEIDA's ultimate goal, according to one slide:
"Become OPC leader in the world."
The pitch attracted powerful Chinese investors.
One backer, recent corporate filings reviewed by Reuters
show, is an investment arm of Semiconductor Manufacturing International Corp,
or SMIC. The state-backed, Shanghai-based company is China's leading maker of
microchips. U.S. companies are restricted by Washington from providing
technology to SMIC without a special license because its alleged work with
China's military is considered a threat to American national security.
SMIC didn't respond to Reuters' requests for comment about
the investment or the U.S. restrictions.
On a recent visit to SEIDA's headquarters in Hangzhou, in
eastern China, a receptionist told Reuters that Zhang wasn't available for an
interview. In an email after the visit, Peilun "Allen" Chang, SEIDA's
chief operating officer, said the prospectus reviewed by Reuters is
"obsolete."
The company's objectives have evolved, he wrote, adding that
its backers are primarily "private institutions and individuals."
Chang declined to specify how much capital SEIDA has raised or what products it
now aims to pursue, saying its business plan remains "under continuous
evaluation."
Siemens EDA, in a statement, confirmed Zhang's departure and
that of three other colleagues. The company said it considers SEIDA "a
potential competitor" but declined to comment further.
Reuters couldn't determine whether SEIDA has progressed
toward selling OPC, short for optical proximity correction. The software is
commonly employed for the design of many microchips and is part of a broader
set of technologies known as electronic design automation, or EDA. The tools
can help design chips that could advance strategic new technologies like
artificial intelligence, quantum computing and hypersonic flight.
Since SEIDA's launch in October 2021, the U.S. government
has increased efforts to curb China's access to EDA tools, developed and sold
mostly by American companies.
Through export controls and other restrictions, Washington
aims to prevent China from obtaining know-how that could allow it to match
microchip advances by the United States and its allies, including Taiwan, the
self-governing island claimed by China and the world's leading chip
manufacturer.
In email exchanges with Reuters, Chang said U.S.
restrictions were one of the reasons Zhang and his colleagues left Siemens EDA
for SEIDA to begin with. The restrictions, he wrote, limited their business
opportunities at Siemens EDA, "diminishing scope for career advancement
and involvement in key projects."
SEIDA adheres to U.S. and Chinese rules, Chang added.
Neither SEIDA nor its executives have been accused of
wrongdoing. And Reuters has no evidence SEIDA is using knowledge or technology
that could be considered proprietary by Siemens EDA or others. Chang said SEIDA
has "a stringent vetting process…ensuring no infringement upon the
intellectual property of others."
Experts in the sector, and people familiar with efforts by
Beijing to outmaneuver U.S. curbs on technology transfer, say SEIDA's launch
follows a pattern of Chinese companies building upon foreign know-how. Even if
the SEIDA executives didn't take property from their previous employer, the
technologies involved are so complex that only years of experience with
existing purveyors would allow them to offer similar products.
"Developing OPC from scratch without access to any
existing intellectual property would be challenging in this timeframe, to say
the least," said Jan-Peter Kleinhans, director of technology and
geopolitics at Stiftung Neue Verantwortung, a Berlin think tank where he has
researched China's market for EDA tools.
The story of SEIDA, which hasn't been previously reported,
illustrates the challenges the West faces in thwarting Chinese development of
advanced microchip technology. Despite Washington's efforts to slow China's
acquisition of chip technology, Beijing is rushing to foster domestic
development, attract expert expatriates to come home and overcome its lag in
the sector.
A spokesperson for China's foreign ministry said in a
statement that the United States "abuses export control measures" and
"applies illegal unilateral sanctions and long-arm jurisdiction to Chinese
companies."
China, the spokesperson added, has adopted laws to protect
intellectual property and "complies with internationally accepted
rules." Technological advances in China, the statement continued,
"are not the result of theft, nor of robbery, but are the result of
Chinese people's ingenuity and hard work."
American officials have repeatedly said that Chinese efforts
to secure Western technology pose one of the biggest long-term threats to the
economy and security of the United States. They have expressed particular
concern about China's ability to employ advanced chips, and the powerful
processors they enable, for its fast-growing military.
"At no point have export controls been more central to
our national security," Matthew Axelrod, assistant U.S. commerce secretary
for export enforcement, said at a Congressional hearing in Washington this
month.
The Chinese foreign ministry spokesperson said such concerns
reflect "a Cold War and hegemonic mentality."
While export rules may delay Beijing's progress, industry
experts say, they are unlikely to stunt China's development of chip technology.
"The U.S. is lying across the tracks in an effort to stop the Chinese, but
it is just going to become a speed bump," said Michael Bruck, a former
general manager in China for chipmaker Intel Corp. "It will push China to
be more independent."
China's government has made its drive for more sophisticated
chips a centerpiece of its strategic plans.
Last year, after Washington announced new restrictions,
Beijing said the government would spend $143 billion to spur China's domestic
chip sector. Through a separate program known as "Thousand Talents,"
the government offers employment, housing, and other incentives for Chinese
experts who return from science and tech jobs abroad.
The program, in existence for more than a decade, has been
criticized by Washington because it is viewed by some as a mechanism for China
to illegally obtain intellectual property from abroad.
Last May, the U.S. Federal Bureau of Investigation arrested
a California-based software engineer on trade secrets charges. In an FBI
affidavit related to the case, investigators said the engineer, Liming Li, had
stolen millions of files from two unidentified U.S. employers.
One of the employers, the affidavit shows, found a folder on
Li's laptop containing documents related to "Thousand Talents." The
pilfered company files, the FBI alleged, included unspecified materials related
to "national security, nuclear nonproliferation and anti-terrorism."
Li has pleaded not guilty. His attorney, Daniel Olmos,
declined to comment.
Reuters this year has chronicled the race between the West
and China for dominance in sectors ranging from killer robots to undersea
cables to encryption of digital communications. The struggle for primacy in
chipmaking will help determine who triumphs in these technologies and others
that will become available once faster processors are developed to enable them.
"THE LIMITS OF PHYSICS"
Since the 1950s, America's pioneering of chip technology
played a major role in the country's creation of the world's largest economy,
powerful high-tech and financial sectors, and a thus-far unparalleled military.
But China's fast economic growth, and its stated ambition to assert its place
as a global power, is now challenging that dominance.
In the Cold War, Washington blocked exports of some raw
materials that Eastern Bloc countries could have used to develop weaponry. At
the time, such measures succeeded because countries behind the Iron Curtain
were already economically isolated.
Now, though, globalization has made most industries far more
interconnected. Semiconductors, an approximately $600 billion a year business,
are no exception. From raw materials to design to assembly, chips are a global
industry.
"The United States is not going to be able to cut the
Chinese off like we did the Soviets," said James Andrew Lewis, director of
the strategic technologies program at the Center for Strategic &
International Studies, or CSIS, a Washington think tank.
An ambition both countries share is self-reliance in the
manufacture of advanced microchips.
Although the United States still leads in many of the
technologies needed to design chips, most of the actual printing and assembly
happens in Asia. The United States relies heavily on South Korea for memory
chips and Taiwan for logic chips. Memory chips store and retrieve information
and logic chips process data and execute instructions.
Last year, the United States approved nearly $53 billion for
"CHIPS for America," a program, administered by the Commerce
Department, that offers financial incentives to companies that can increase
domestic production. Recipients of the incentives are restricted from sharing
sensitive technologies with China and other countries not allied with the
United States.
Among the challenges for China to create more advanced chips
is access to EDA tools, such as the OPC software touted by SEIDA in early
marketing.
Producing the fastest, most capable chips and circuit boards
involves designing and printing them with billions of ever-smaller transistors.
To achieve such microscopic connections, EDA helps lay out and verify the
design of these circuits and simulate how they'll perform under real-world
conditions.
But EDA tools require intense processing power.
So specialized is the technology that some advances are
marketed as scientific breakthroughs. NVIDIA Corp (NVDA.O), the
California-based company that is the leading supplier of chips for artificial
intelligence, in March said recent advances in OPC technology would help it
push the semiconductor industry "to the limits of physics."
Despite U.S. export controls, China is making advances.
In 2019, the Commerce Department placed Huawei Technologies
Co (HWT.UL), the Chinese telecommunications giant, on its list of companies
that can't buy U.S. technologies unless the vendor obtains a special license.
As with SMIC, blacklisted by the department a year later, the U.S. cited
national security concerns.
"Our export controls on China are designed to massively
slow down technology acquisition," Thea D. Rozman Kendler, assistant
commerce secretary for export administration, said at the recent Congressional
hearing.
Still, Huawei in August introduced a new 5G smartphone with
a sophisticated, seven-nanometer chip manufactured by SMIC. The phone, unveiled
while U.S. Commerce Secretary Gina Raimondo was visiting China, was announced
to great fanfare. The Commerce Department later said it is investigating
whether the two companies relied on restricted U.S. technologies to develop the
chip.
Huawei declined to comment.
Proving the source of some technologies can be challenging.
Many semiconductor advances build upon existing intellectual
property. And the turnover of personnel within the industry, especially across
international borders, can make it difficult to investigate export violations
or pursue claims of intellectual property theft. "You can't really control
what's in people's brains with any export controls," said Lewis of CSIS.
Alon Raphael, chief executive of a California company that
sells a tool to detect semiconductor defects, said he learned that lesson the
hard way. Until 2020, he said, FemtoMetrix Inc, was the sole supplier of the
technology, which it spent a decade developing.
But late that year, Raphael said, Chongji Huang, a key
employee, resigned and emerged later in China with a Shanghai-based startup
that offers a similar product. "I had heard these kinds of stories,"
Raphael told Reuters, "but I said to myself, 'No, not that guy, he's my
friend.'"
Late last year, FemtoMetrix filed suit in California against
the startup. Robert Shwarts, an attorney representing Huang and his startup,
Weichong Semiconductor Group, told Reuters that neither Huang nor the startup
took anything from FemtoMetrix, nor did they violate any trade secrets.
"ENABLE CHIP SUCCESS"
SEIDA, the startup managed by Siemens EDA veterans, is one
of many Chinese tech startups founded in recent years to meet Beijing’s call
for a stronger domestic semiconductor industry.
The proliferation can be hard to track.
Recent changes to Chinese regulations restrict access to
company registries. Reuters couldn't determine whether China's government had
any role in SEIDA's launch or whether Zhang, the chief executive, or his
colleagues received any state incentives to leave Siemens EDA and work there.
Reporters reviewed some of SEIDA's corporate filings with
the help of two companies that collect and analyze Chinese business records –
Datenna, of the Netherlands, and Global Data Risk, based in New York. Combined
with interviews and public records, the filings, dating back to October 2021,
enabled Reuters to piece together some of SEIDA's history so far.
SEIDA, the filings show, is majority-owned by partnerships
now controlled by Zhang and some of the former Siemens EDA colleagues who
joined him. It isn't clear when those partnerships were established or by whom.
Records show the partnerships invested in SEIDA in November 2021 – weeks after
the startup's launch and before Zhang left Siemens EDA.
Zhang's path toward SEIDA began at Mentor Graphics Corp, the
predecessor company to Siemens EDA, acquired by Munich-based Siemens in 2017.
Mentor, started in Oregon in 1981, was an early innovator of EDA and eventually
became one of three U.S. companies that sell most of the software worldwide. By
the time of its acquisition, Mentor boasted annual revenues of $1.2 billion.
With a masters degree in microelectronics from a Shanghai
university, Zhang worked for more than a decade at Mentor and Siemens EDA,
according to SEIDA’s 2022 presentation to investors. Before joining the
startup, he was a Siemens EDA product director.
Zhang is now 44 years old, according to U.S. and Chinese
records. He became chief executive of SEIDA in July 2022, according to the
SEIDA filings.
Reuters found that at least three other Chinese-born
colleagues who joined Zhang were also longtime employees of Siemens EDA. Two of
them, Zhitang "Tim" Yu and Yun Fei "Jack" Deng, earned
doctorates from U.S. universities, academic records show. Born in China, Yu is
also an American citizen, according to U.S. records. Deng, also born in China,
obtained legal permanent resident status in the United States.
SEIDA declined to make Deng or Yu available for interviews.
Under the new export restrictions, U.S. citizens and
permanent residents can face penalties if they help Chinese companies develop
or manufacture advanced chips without a license. Those penalties can include
citations, fines or prison time, depending on the violation.
Chang, the chief operating officer, said by email: "We
continuously monitor both emerging and existing regulations to ensure our
operations align with applicable legal standards."
As they sought investors last year, SEIDA executives aimed
high. In the 2022 slideshow, they projected the company could be worth as much
as 700 million yuan, or $99 million, by the end of last year. By 2026, they
said, SEIDA hoped to sell shares to the public.
Their efforts attracted at least one important backer.
In June 2023, SEIDA received undisclosed funding from China
Fortune-Tech Capital Co, or CFTC, an investment vehicle owned by chipmaker
SMIC, according to records compiled by Datenna and PitchBook Data Inc, a
U.S.-based corporate research company. CFTC didn't respond to requests for
comment.
SEIDA continues to secure investors. This month, according
to its corporate filings, five more investors, including four Chinese venture
capital firms, acquired stakes in the company.
Chang wouldn't say if the ongoing review of SEIDA's business
plan means a departure from its early marketing of OPC. "Due to the
confidential nature of our business strategies, specific details of our current
and future plans cannot be disclosed," Chang wrote.
During Reuters' visit to SEIDA headquarters, the reception
desk bore the same branding as the early fundraising presentation. The SEIDA
name, according to the slideshow, is an acronym for "Semiconductor
Intelligent Design Automation." Its slogan, in the branding and on SEIDA's
website, translates to "enable chip success."
Reuters
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