China’s top chipmaker gets Foxconn investment without official approval

Primary iPhone assembler Foxconn has reportedly bought a stake in China’s top chipmaker, Tsinghjau Unigroup – but appears to have done so without the necessary government approval.

The move comes at a time when Apple is seeking to widen its chip supplier roster to guard against supply chain disruptions …

Bloomberg cites its own sources.

A Shanghai-listed arm of Foxconn Technology Group acquired a stake in China’s top chipmaker during its $9 billion bailout, people familiar with the matter said, the latest in a series of investments the Taiwanese-run firm has made in the mainland’s semiconductor industry.

Foxconn Industrial Internet Co. invested in state-backed Tsinghua Unigroup through a fund it set up with investment house Wise Road Capital, according to people familiar with the deal. The fund paid about 5.3 billion yuan ($788 million) for a minority stake in Unigroup, one of the people said, asking not to be identified discussing a private deal.

The Taiwanese government views this as a “sensitive” deal, and requires companies to seek approval from the country’s investment watchdog. However, both Bloomberg and Taiwan’s Economic Daily report that no application has been filed.

The investment […] could raise eyebrows as tensions rise between Beijing and Taipei over issues including technology and supply chain security. The deal requires a green light from Taiwan’s investment commission, which oversees sensitive deals, but Foxconn has not submitted an application for approval, an official with Taiwan’s Ministry of Economic Affairs told Bloomberg News by phone […]

Taiwan’s Economic Daily quoted officials from the island’s investment commission as saying Foxconn will need to apply for approval to close its investment. Calls to a commission spokesman went unanswered Wednesday.

Bloomberg has previously reported that Apple is, for the first time, considering buying flash storage chips from a Chinese chipmaker – including a subsidiary of Tsinghua Unigroup.

Apple currently buys a high proportion of its iPhone storage chips from a partnership of two Japanese companies: Western Digital and Kioxia. However, two of their plants were last month hit by an unspecified contamination issue, with production significantly reduced. While Apple is believed to have been able to compensate with increased orders to Samsung and SK Hynix, the incident highlighted Apple’s dependence on the partnership, and likely prompted the company to explore options to diversify its suppliers.

Apple increasing its use of Chinese suppliers would be a controversial move at a time of heightened tensions with the US – and would increase the iPhone maker’s dependence on the country at a time when both US and UK security services have warned about the risks.

Back in March, we warned of the risk of Apple’s disaster scenario: Chinese takeover of Taiwan. Yesterday, the heads of both US and UK security services gave an “unprecedented” warning that this is not only possible but that China has been taking steps to prepare for this.

If it happened, it would lead to the almost total disruption to the vast bulk of Apple’s manufacturing resources.

TSMC remains Apple’s sole supplier of its A-series, M-series, and S-series chips, and that isn’t going to be changing anytime soon as the Taiwanese company has consistently had a strong technological lead over competing companies like Samsung.

However, flash memory chips are often a gateway to more sophisticated chipmaking, and Apple would certainly like to be in a position of having multiple custom chipmakers to choose from. China’s top chipmaker will certainly have ambitions to expand its manufacturing capabilities.

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Naveen Kumar

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