Nexperia: From billions to zero in the trade war – with a twist in the tale

The Nexperia saga takes the Nobel Prize for the most idiotic FAFO business move in history but in the end, it ends up serving dedollarization.  China, of course, retaliated, stopped supply, made many substantial businesses very nervous to the point of cutting production lines and staff in cases, but more than that, China leveraged and said, No More Stinkin’ Dollar.  You can now pay in Yuan.

🔹Japanese suppliers are now among the growing number of global auto companies warning of “serious” semiconductor shortages triggered by the embattled chipmaker Nexperia. The recent intervention by the Dutch government to seize control of Nexperia, citing the rarely-used “Goods Availability Act”, last invoked during the Cold War, has ignited a significant escalation in tensions with Beijing.  That is one aspect, but it denuded this market of semiconductors.

🔹Nexperia Netherlands was acquired by Chinese Wingtech Technology in Oct 2018. Under Chinese ownership, the company’s revenue grew, it remained profitable, and it paid off the acquired company’s debt. Nexperia was efficiently delivering more than 90 billion components a year.

Volkswagen warned that the China-Netherlands Nexperia dispute could lead to output stoppages, i.e., no production will take place.   (No tickee, no washee style)

🔹In the official court documents, it is clear that the underlying reason driving the eventual takeover of the company was the prospect of escalation in U.S. trade sanctions under the 50% rule, which was officially released on September 29th. A detailed timeline of the events described in the legal brief clearly shows that the entire series of events was instigated by the addition of Wingtech, which indirectly owned/controlled 100% of Nexperia, to the Entity List.

🔹Companies that have wholly owned subsidiaries can typically appoint directors and indirectly, executives. The owners generally have unrestricted access to funds. Wingtech paid $3B+ in 2018 for that right. It is only because Wingtech was placed on the Entity List that these new restrictions were imposed on its corporate governance rights within the company.

🔹Thus it is clear that the Nexperia case is direct fallout from the trade/tech war between the U.S. and China. The prospect of FDI and acquisitions being seized in the future dampens the willingness of Chinese companies to invest. Chinese companies have already gotten the message loud and clear on the U.S. but now they are seeing it in certain European countries.

🔹This exceptional move sparked immediate retaliation from Beijing, which imposed export controls on Nexperia’s China operations, escalating the global tech decoupling crisis. The most dependent companies in Europe for components from frozen and sanctioned Nexperia are VW, BMW, Stellantis, Bosch, ASML, Siemens, and Airbus. By withholding essential semiconductors, China could leverage its position in the global market, affecting industries worldwide.

🔹Nexperia, now under Dutch government control, produces large volumes of chips in the Netherlands. The majority are packaged in China and sold mostly to distributors. Today, October 23rd, Nexperia’s Chinese unit has resumed supplying semiconductors to local distributors. This resumption is confined to domestic trade, and …,

all sales to distributors must now be settled in Chinese yuan,

whereas transactions had previously only used foreign currencies such as the U.S. dollar.

Those who write novels with a financial or economic component, this fast and furious story will make a compelling part woven through your novel.  Just imagine sketching the character of this brilliant Chinese structural financial genius, looking around his table, and saying:  Let the Barbarians use Yuan!

Video source: Egypt’s QNews (https://www.youtube.com/watch?v=uakQmFXrVro&list=WL&index=133)