A seasoned software executive from Silicon Valley took the lead last year on a firm in his home China, according to corporate documents. Prospective investors were informed by the startup that it would offer microchip design software, which is primarily distributed by a small number of major Western corporations.
Known by its initials, OPC, the highly sought-after and specialized software tool is essential to the design of innovative chips and is employed in the creation of numerous microchips.
Currently dividing the US and China in their scientific battle for military and economic dominance is the production of sophisticated chips, one of the most controversial technological disputes. China’s access to key semiconductor design tools is being restricted by Washington.
The startup, called SEIDA, demonstrates why the containment effort is so difficult.
He worked at Siemens EDA, the American branch of the German industrial behemoth Siemens AG, which controls the Chinese market for the very technology SEIDA promised investors it would sell there. Zhang was joined at SEIDA by a minimum of three additional Chinese-born colleagues from Siemens EDA.
According to persons acquainted with his work and public records, Liguo “Recoo” Zhang had lived in the United States long enough to get permanent status and buy a home in Silicon Valley before taking on the role of chief executive of SEIDA.
SEIDA referred to OPC as “indispensable technology” in a 2022 investor presentation and stated that the tool would be available by early 2024. According to SEIDA, a Chinese version of the product would “break through the foreign monopoly,” assisting China in becoming a chip technology-independent nation. One presentation stated that SEIDA’s ultimate objective was to “become the global leader in OPC.”
The pitch drew in influential Chinese financiers.
One supporter is the investment division of Semiconductor Manufacturing International Corp., or SMIC, according to recent corporate papers.
The Shanghai-based, state-backed business leads China’s semiconductor manufacturing industry. Washington prohibits American companies from supplying technology to SMIC without a special license because it believes that the company’s purported military cooperation with China poses a threat to U.S. national security.
A receptionist at SEIDA’s headquarters in Hangzhou, eastern China, told reporters that Zhang was not available for an interview during a recent visit. The chief operating officer of SEIDA, Peilun “Allen” Chang, stated in an email following the visit that the prospectus that reporters examined is obsolete.
The writer stated that the company’s goals have changed and that its main supporters are “private institutions and individuals.” Chang declined to reveal the amount of money SEIDA has raised or the items it currently hopes to sell, stating that the company’s business plan is “under continuous evaluation.”
Zhang’s and three other coworkers’ departures were verified by Siemens EDA in a statement. Although it declined to provide any details, the business stated that it views SEIDA as “a potential competitor.”.
The progress made by SEIDA towards offering optical proximity correction, or OPC, for sale was unclear to reporters. A larger group of technologies known as electronic design automation, or EDA, includes the software, which is frequently used for the creation of several microchips. Chips that could lead to the advancement of crucial new technologies like hypersonic flying, quantum computing, and artificial intelligence can be designed with the aid of these instruments.
China’s access to EDA tools, which are mostly produced and marketed by American companies, has been restricted by the U.S. government since the debut of SEIDA in October 2021.
Washington seeks to stop China from acquiring technology that would enable it to match microchip advancements made by the US and its allies, including Taiwan, the self-governing island that China claims is part its own country and the world’s top chip producer, through export limits and other measures.
Chang stated in emails that one of the first reasons Zhang and his colleagues left Siemens EDA for SEIDA was because of US constraints. Their commercial potential at Siemens EDA was limited by the restrictions, he noted, “diminishing scope for career advancement and involvement in key projects.”
Chang stated that SEIDA follows Chinese and American regulations.
No one has accused SEIDA or its management of any misconduct. Furthermore, there is no proof that SEIDA is utilizing any technology or expertise that Siemens EDA or other parties would view as proprietary. Chang stated that SEIDA has “a stringent vetting process of ensuring no infringement upon the intellectual property of others.”
According to industry insiders and those acquainted with Beijing’s efforts to outmaneuver American restrictions on technology transfer, SEIDA’s introduction is consistent with a trend in which Chinese businesses are leveraging foreign technology. The technologies in question is so sophisticated that even if the SEIDA executives hadn’t pilfered from their former businesses, they could only provide comparable items with years of expertise working with current suppliers.
“It would be difficult, to put it mildly, to develop OPC from scratch without access to any existing intellectual property in this timeframe,” stated Jan-Peter Kleinhans, the director of technology and geopolitics at Stiftung Neue Verantwortung, a think tank in Berlin that has studied the EDA tool market in China.
The hitherto unreported tale of SEIDA highlights the difficulties the West encounters in impeding China’s advancement of sophisticated microprocessor technology. Despite Washington’s attempts to impede China’s adoption of semiconductor technology, Beijing is racing to promote internal growth, entice skilled foreign workers to return home and catch up with the rest of the world in this area.
In a statement, an official from China’s foreign ministry claimed that the US “abuses export control measures” and that it “applies illegal unilateral sanctions and long-arm jurisdiction to Chinese companies.”
The representative went on to say that China “complies with internationally accepted rules” and has passed legislation to protect intellectual property. The statement went on to say that China’s technological advancements “are not the result of theft or robbery, but are the result of Chinese people’s ingenuity and hard work.”
One of the biggest long-term risks to the US economy and security, according to US officials, is China’s efforts to acquire Western technology. They have voiced specific concerns about China’s capacity to equip its rapidly expanding military with cutting-edge chips and the potent processors they enable.
During a congressional hearing in Washington this month, Matthew Axelrod, the deputy U.S. commerce secretary for export enforcement, stated, “At no point have export controls been more central to our national security.”
According to a spokesman for the Chinese foreign ministry, these worries are a reflection of “a Cold War and hegemonic mentality.”
Industry experts say that although export restrictions might impede Beijing’s growth, they are unlikely to impede China’s advancement in semiconductor technology. “To stop the Chinese, the U.S. is lying across the tracks, but it’s just going to become a speed bump,” stated Michael Bruck, a former general manager of Intel Corp.’s China operations. “It will push China to be more independent.”
The pursuit of increasingly advanced processors has become a key component of China’s strategic agenda.
Beijing declared last year that the government would invest $143 billion to support the country’s chip industry, following the announcement of further curbs by Washington. In a different initiative called “Thousand Talents,” the government provides jobs, housing, and other benefits to Chinese professionals returning from tech and research positions outside.
Washington has criticized the program, which has been in place for more than ten years since some see it as a means for China to illegally gain intellectual property from other countries.
A software engineer from California was detained by the Federal Bureau of Investigation in May of last year on suspicion of stealing trade secrets. Investigators said that the engineer, Liming Li, had taken millions of pieces of data from two unnamed U.S. firms in an FBI document about the case.
As per the affidavit, one of the employers discovered on Li’s laptop a folder containing papers about “Thousand Talents.” The FBI claimed that data about “national security, nuclear nonproliferation, and anti-terrorism” were among the stolen firm files.
Li entered a not-guilty plea. Daniel Olmos, his lawyer, declined to comment.
The competition between the West and China for supremacy in fields including killer robots, underwater cables, and digital communication encryption has been extensively covered this year. The competition to become the leader in chip making will determine who wins in these areas as well as others that will follow once faster processors are built to make them possible.
THE BOUNDARIES OF PHYSICS
America’s leadership in chip technology since the 1950s has been important in building the largest economy in the world, strong financial and high-tech industries, and an unmatched military. However, China’s rapid economic expansion and its professed goal of establishing itself as a major world power are currently undermining that dominance.
Washington halted the transfer of some raw materials to Eastern Bloc nations during the Cold War, preventing them from using such resources to build weapons. These tactics were successful at the time because the nations behind the Iron Curtain were already economically cut off.
However, the majority of industries are now significantly more integrated because of globalization. Semiconductors are no different, a $600 billion industry annually. Chips are an assembly line product, from design to raw materials, chips are a global industry.
“The Centre for Strategic & International Studies, or CSIS, a Washington think tank, director of its strategic technologies program, James Andrew Lewis, stated, “The United States is not going to be able to cut the Chinese off the way we did the Soviets.”
Self-reliance in the production of cutting-edge microchips is a goal shared by both nations.
Even though the US still leads the world in many of the technologies required to design chips, the majority of printing and assembly takes place in Asia. Taiwan provides logic chips, whereas South Korea supplies memory chips, which are greatly relied upon by the US. While logic chips handle data processing and instruction execution, memory chips store and retrieve information.
“CHIPS for America,” a program run by the Commerce Department that provides financial incentives to businesses that can enhance domestic output, received roughly $53 billion in approval from the US government last year. Recipients of the incentives are prohibited from disclosing confidential information to China or other nations that are adversaries of the US.
One of the obstacles China faces in producing increasingly sophisticated semiconductors is getting access to EDA tools, including the OPC software that SEIDA promoted in its first marketing.
It takes billions of ever-smaller transistors to design and print the quickest, most capable chips and circuit boards. EDA assists in laying out, verifying, and simulating the performance of these circuits under real-world situations to obtain such minuscule connections.
However, EDA tools demand a lot of computing power.
The technology is so specialized that certain developments are sold as improvements in science. Recent developments in OPC technology would enable NVIDIA Corp., a California-based business that leads the industry in providing processors for artificial intelligence, to push the semiconductor industry “to the limits of physics.” This statement was made in March.
China is progressing despite US export restrictions.
The Chinese telecom behemoth Huawei Technologies Co. was added to the Commerce Department’s list of businesses that are prohibited from purchasing American technologies unless the seller receives a special license in 2019. Similar to SMIC, which the department banned a year later, the United States gave the excuse of national security.
During the recent Congressional hearing, Thea D. Rozman Kendler, assistant commerce secretary for export administration, stated, “Our export controls on China are designed to massively slow down technology acquisition.”
Nevertheless, Huawei unveiled a new 5G smartphone in August that features an advanced SMIC seven-nanometer processor. With much hoopla, the phone was presented during U.S. Commerce Secretary Gina Raimondo’s visit to China. Later, the Commerce Department announced that it was looking into the possibility that the two businesses developed the microprocessor using restricted U.S. technologies.
Huawei opted not to respond.
It can be difficult to establish the origin of some technology.
Numerous advancements in semiconductors expand upon preexisting intellectual property. Additionally, the industry’s high employee turnover, particularly when it comes to cross-border hiring, can make it challenging to look into export issues or pursue charges of intellectual property theft. “You can’t control what’s in people’s brains with any export controls,” said Lewis of the CSIS.
The CEO of a California-based business that offers a tool for identifying semiconductor flaws, Alon Raphael, claimed to have discovered this lesson the hard way. He said that FemtoMetrix Inc., which developed the technology for ten years, was the only seller of it until 2020.
However, Chongji Huang, a crucial employee, quit towards the end of that year, according to Raphael, and later surfaced in China with a Shanghai-based firm that sells a comparable product. “I had heard these kinds of stories,” Raphael stated, “but I said to myself, ‘No, not that guy, he’s my friend.'”
FemtoMetrix sued the startup in California towards the end of the previous year. Weichong Semiconductor Group, the business Huang founded, and its lawyer, Robert Shwarts, said that neither Huang nor the company stole anything from FemtoMetrix or violated any trade secrets.
ENSURE CHIP SUCCESS
One of the numerous Chinese tech businesses established in response to Beijing’s need for a more robust domestic semiconductor industry is SEIDA, which is run by former Siemens EDA employees.
It can be challenging to monitor the spread.
Chinese restrictions have recently changed, restricting access to company registries. Zhang, the CEO, and his colleagues may have gotten official incentives to leave Siemens EDA and work there, but it is difficult to ascertain whether China’s government was involved in SEIDA’s founding.
Two organizations, Datenna of the Netherlands and Global Data Risk of New York, which gather and examine Chinese company information, assisted reporters in reviewing a portion of SEIDA’s corporate filings. The papers, which date back to October 2021, put together some of SEIDA’s past with the help of interviews and publicly available information.
According to the documents, partnerships led by Zhang and a few of his former Siemens EDA coworkers now own the bulk of SEIDA. When and by whom those partnerships were formed is unclear. A few weeks after the startup’s founding and before Zhang departing Siemens EDA, records indicate that the partnerships invested in SEIDA in November 2021.
Zhang’s journey to SEIDA started with Mentor Graphics Corp., the firm that Siemens EDA formerly owned and which Siemens, headquartered in Munich, purchased in 2017. Mentor was one of the first three American companies to sell the majority of software globally. Founded in Oregon in 1981, Mentor was a pioneer in the field of electronic data analysis. Mentor claimed $1.2 billion in yearly revenues at the time of its acquisition.
According to SEIDA’s 2022 presentation to investors, Zhang held a master’s degree in microelectronics from a Shanghai institution and spent over ten years working at Siemens EDA and Mentor. Before coming to work for the startup, he was the Siemens EDA product director.
Based on Chinese and American records, Zhang’s current age is 44 years old. July 2022 saw him take over as SEIDA’s CEO, according to the SEIDA filings.
At least three other Chinese-born coworkers who joined Zhang were Siemens EDA veterans. Academic records indicate that two of them, Zhitang “Tim” Yu and Yun Fei “Jack” Deng, obtained doctorates from American universities. Yu was born in China, but U.S. records show that he is also an American citizen. Deng, who was born in China as well, became a lawful permanent resident of the US.
Deng and Yu were not made available for interviews by SEIDA.
U.S. citizens and permanent residents may be penalized under the new export limits if they assist Chinese companies in developing or producing sophisticated semiconductors without obtaining the necessary licenses. Depending on the infraction, these consequences may consist of fines, jail time, or tickets.
Email correspondence from Chang, the COO, stated: “We continuously monitor both emerging and existing regulations to ensure our operations align with applicable legal standards.”
Last year, SEIDA executives set high goals for themselves when looking for investors. By the end of the previous year, the company might have been valued as high as 700 million yuan, or $99 million, according to the 2022 presentation. SEIDA aimed to sell shares to the public by 2026, they stated.
Their efforts garnered the support of at least one influential person.
Records obtained by Datenna and PitchBook Data Inc., a corporate research firm based in the United States, show that SEIDA got hidden cash in June 2023 from China Fortune-Tech Capital Co. or CFTC, an investment vehicle owned by chipmaker SMIC. CFTC did not reply to inquiries for information.
SEIDA is still able to attract investors. Five other investors, including four Chinese venture capital firms, bought shares in the company this month, according to its corporate papers.
Chang declined to comment on whether SEIDA’s business plan is now being reviewed or if it will stop marketing OPC as early as it did. “Due to the confidential nature of our business strategies, specific details of our current plans cannot be disclosed,” stated Chang.
The welcome desk at SEIDA headquarters had the same branding as the initial fundraising pitches. The slideshow states that SEIDA stands for “Semiconductor Intelligent Design Automation.” In the branding and on SEIDA’s website, the tagline is translated as “enable chip success.”
