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(Bloomberg) -- Chinese flexible display maker Royole Corp. is weighing an initial public offering in China while its planned U.S. listing is put on hold, according to people familiar with the matter.Royole had filed confidentially for a U.S. IPO that could raise about $1 billion, Bloomberg News reported earlier this year. However, the startup is now considering a listing in China, the people said, asking not to be identified as the information is private.Considerations are at an early stage and no final decisions have been made, the people said. A representative for Royole declined to comment on the matter.Royole, known for manufacturing the world’s first commercial foldable phone, had originally planned to raise funds via a private financing round at a valuation of about $8 billion, people familiar with that deal said last year. But the Chinese company turned to the U.S. markets after liquidity tightened during a downturn in China’s venture capital sector, the people said.Since January relations between the U.S. and China have deteriorated sharply, with tensions spanning trade, technology and Hong Kong. Many U.S.-listed Chinese companies are considering second listings closer to home in Hong Kong, while China has been actively seeking to lure innovative technology companies to list in Shanghai and Shenzhen.Royole competes with Samsung Electronics Co. and BOE Technology Group Co. to produce bendable screens using cutting-edge organic light-emitting diode technology. The company, which gave away wraparound-screen hats at the 2018 World Cup in Russia, in January unveiled a smart speaker that packs a bendable display around a cylinder.Its full line of products encompasses head-mounted displays intended for use as so-called mobile theaters and other wearable flexible displays. The company even has a smart writing pad that it sells on Amazon.com, JD.com and in stores globally.Royole’s earlier investors include Knight Capital, IDG Capital, Poly Capital Management, AMTD Group, the funds of Chinese tycoon Xie Zhikun and the venture capital arm of the Shenzhen city government.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Cooped up within a large conference room on the 15th floor of government offices in downtown Seoul, 13 South Korean citizens sparred for nine hours over the country’s most contentious issue: the legal fate of Samsung heir apparent Jay Y. Lee.The all-male group -- including professors, school teachers and two Buddhist monks -- gathered Friday after Lee invoked a rarely used option to have a civilian panel review legal cases. They heard arguments for and against indicting the billionaire on allegations of financial fraud. They then debated among themselves for another two hours before deciding to try a secret ballot to break the impasse. The outcome -- 10 against an indictment and just three for -- stunned panel members themselves.“We were all quite surprised,” one of the members told Bloomberg News, asking not to be named since he wasn’t authorized to talk about their discussions. “We had a heated debate but not every member exposed their thinking. It was really hard to tell.”The decision, while not legally binding, hands an important victory to Samsung and its de facto leader, who gambled on the little-known system to undercut the government’s case and showcase support for Korea’s largest corporation. The recommendation provoked an immediate backlash from corporate governance activists and lawmakers, who urged prosecutors to seek Lee’s indictment anyway. But if they decide to ignore the panel, officials risk angering a populace that regards Samsung -- the world’s largest maker of smartphones, memory chips and appliances -- as critical to reviving the country’s economy after the coronavirus outbreak.Lee’s attorneys said they are “thankful” for the panel’s involvement and “respect the decision.” Representatives for the prosecutors’ office declined to comment when contacted for this story.On Wednesday, civil organizations from both sides of the debate held separate press conferences in Seoul to comment on the panel’s conclusion. Samsung Electronics Co. shares fell 0.4% on the day, while Samsung Biologics, one of the companies implicated in the allegations against Lee, was down 3%.Read more: Samsung’s Billionaire Heir Scores Public Win in Graft ProbeBefore Lee’s request, few outside of legal circles had even heard of the civil panel option, which was created in 2018. Now it’s influencing a case that’s spurred nationwide controversy, pitting the country’s most powerful chaebols, or conglomerates, against government agencies that have pledged to diminish their influence and cozy ties to the president’s administration and his Blue House.In most legal systems of the developed world, public prosecutors decide which cases to pursue, with judges or juries acting as a check by determining the ultimate verdict. South Korea started the unusual civilian panel option as part of reforms under the Moon Jae-in administration. It’s similar to the grand jury system except panel members are chosen -- at random -- by the supreme prosecutors’ office from an existing pool of several hundred pre-vetted names. Friday’s panel thus served as a barometer for how the public views the Samsung heir as well as the chief prosecutor, who is appointed by the president.Their meeting started at 10:30 am. Prosecutors gave a presentation for about 75 minutes, then a Q&A session for another 90. Following a half-hour boxed lunch, Lee’s lawyers took their turn. During the discussions, the panelists pored over 50 pages of densely worded legal statements, plus a lengthy filing from a liberal civil organization that explained the allegations against Lee, which included stock and accounting manipulation. There followed a final, two-hour-long. freewheeling debate, during which the 13 openly expressed their views, one of them said. At one point, a reporter texted one of the members -- whose identities had been kept under wraps -- causing a bit of a stir.A second panelist said he expected a close vote considering the polarized public opinion. A third member said he was disheartened about the subsequent controversy over the decision, given they tried their best to be impartial. But he acknowledged one or two members raised the question of the economic impact of Samsung’s legal crisis. “This is an ideological war surrounding a chaebol company behind the scenes,” one of the panelists said.Why Samsung’s Billionaire Scion Is Facing Jail Again: QuickTakeSouth Korea’s special prosecutors first indicted Lee in early 2017 on charges of bribery and corruption, kicking off a years-long dispute that led to the impeachment of former President Park Geun-hye. Prosecutors accused Samsung of providing horses and other payments to a confidante of Park’s, to win support for his succession. Lee was found guilty, but then freed after about a year after the court suspended his sentence -- a controversial decision that the Supreme Court has since reversed, raising the prospect of a retrial. The case discussed Friday was related and centers on whether Lee and Samsung used illegal means to help him take control of the conglomerate founded by his grandfather.While one of the panelists broached the bigger political and economic ramifications, they got bogged down in highly technical details. Members said the biggest hitch in deliberations was how to interpret Article 178 - the prohibition of unfair trading - of the Financial Investment Services and Capital Markets Act, and whether Lee violated the clause. Prosecutors suspect Samsung Biologics Co. intentionally violated accounting rules to justify a more favorable merger ratio between Biologics’ major owner, Cheil Industries, and Samsung C&T. That in turn helped bolster the value of the heir’s stake in Cheil and his influence at Samsung Group. Prosecutors also allege that Lee was involved in stock price manipulations during the 2015 merger, which Samsung and Lee’s attorneys have denied.The panel was divided on whether Samsung complied with financial law during the deal, and on whether Samsung had a clear motive to execute the merger for Lee. One of the members said some were of the opinion that prosecutors had so far failed to produce a “smoking gun,” a strong persuasive argument that crimes were committed. But another member who said he voted against Lee said there were ample documents to support a case against the executive, including records of phone calls and emails that appeared to show Lee was aware of the alleged scheme. He didn’t elaborate, citing legal confidentiality.The ball is now in the prosecutors’ court, another of the members said. Prosecutors have mostly abided by previous recommendations, but no panel has ever reviewed such a high-stakes case. Officials have invested years into their investigation and may seek to make an example of Lee. If they decide to proceed, an indictment may tie up Samsung’s chief in trials for another three years.“Apart from Lee’s personal responsibility, I believe this should be a chance to uphold financial market law and order,” one of the members said. “Our society has to become transparent and fair for our future generations.”(Updates with share prices and Wednesday developments in sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- China’s No. 2 smartphone brand Vivo Mobile Communications Co. has broken ground on a high-rise office in Shenzhen to house its future headquarters, highlighting a construction boom from the country’s burgeoning tech sector.Scheduled for completion in 2025, the gadget maker’s 32-story abode will house 5,800 workers and was designed by NBBJ, the architects behind Samsung’s Silicon Valley campus and Seattle’s Amazon Spheres. The new building will feature Vivo’s flagship store, indoor gardens at every level and a spiraling exterior with self-shading glass, according to the architectural firm.Vivo joins the likes of Tencent Holdings Ltd. and ByteDance Ltd. in spending big on new office space -- much of it in the bustling tech hub of Shenzhen -- adding to a mega-building splurge at a time when economic turmoil is forcing other businesses to cut back. WeChat operator Tencent is building an adjacent campus roughly the size of midtown Manhattan on reclaimed land in Qianhai Bay that cost the company $1.2 billion. Vivo paid 1.3 billion yuan ($182 million) for the site of its new headquarters and TikTok owner ByteDance recently spent 1.1 billion yuan for land in the city’s downtown area, according to the local land authority.Kuaishou, a YouTube-like video platform backed by Tencent, is spending 3 billion yuan on a base for its fledgling e-commerce business in Chengdu, complete with studios for live-streamers hawking wares.Some economists say building booms signal an overheated economy that precedes a crash. But NBBJ, which also designed campuses for Alphabet Inc.’s Google and Alibaba Group Holding Ltd. affiliate Ant Group, argues China’s tech giants have outgrown their old digs and are now merely seeking space to anchor a potential wave of future global expansion.Vivo, which began life in the midst of Android’s rise a decade ago, has steadily grown into a leader at home and across Asia and Europe, alongside compatriots Huawei Technologies Co. and Xiaomi Corp. Its development encapsulates the way Chinese names have started making waves abroad.“What we’ve seen now is part of a natural life cycle of these companies where they’ve outgrown their current facilities, and they need new ones to operationally support their growing global reach,” said NBBJ partner Robert Mankin, who’s responsible for the Vivo project. “It’s increasingly rare in the U.S. for companies to build their individual headquarters campus, and you still see it in Asia.”Read more: ByteDance Launches Global Hiring Spree With 10,000 New JobsThe tech campus boom coincides with a trillion-dollar effort in China to both stimulate the economy and lay the networking and data-center foundations for next-generation internet technology. In terms of offices, Tencent has the most ambitious expansion plans among its peers. Dubbed Net City, its latest project includes solar panels, arrays of automated sensors, mangroves to prevent flooding and a pedestrian-friendly transportation network. It will take around seven years to complete.Tencent currently has 38,000 workers in Shenzhen, with the headcount expected to more than double in seven years, according to the local government. ByteDance has said it plans to create 40,000 new jobs this year, and the startup has rented new offices in Hong Kong and bought a Beijing shopping plaza to convert into a workplace.Vivo’s crosstown rival Oppo is also building new headquarters in Shenzhen. The project, designed by Zaha Hadid Architects, will feature a 20-story vertical lobby, an art gallery, shops and restaurants. Construction is expected to complete in 2025.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The U.S. and China are moving beyond bellicose trade threats to exchanging regulatory punches that threaten a wide range of industries including technology, energy and air travel.The two countries have blacklisted each other’s companies, barred flights and expelled journalists. The unfolding skirmish is starting to make companies nervous the trading landscape could shift out from under them.“There are many industries where U.S. companies have made long-term bets on China’s future because the market is so promising and so big,” said Myron Brilliant, the U.S. Chamber of Commerce’s head of international affairs. Now, they’re “recognizing the risk.”China will look to avoid measures that could backfire, said Shi Yinhong, an adviser to the nation’s cabinet and a professor of international relations at Renmin University in Beijing. Any sanctions on U.S. companies would be a “last resort” because China “is in desperate need of foreign investment from rich countries for both economic and political reasons.”Nevertheless, pressure is only expected to intensify ahead of the U.S. elections in November, as President Donald Trump and presumptive Democratic nominee Joe Biden joust over who will take a tougher line on China.Trump has blamed China for covering up the coronavirus pandemic he has mocked as “Kung Flu,” accused Beijing of “illicit espionage to steal our industrial secrets” and threatened the U.S. could pursue a “complete decoupling” from the country. Biden, likewise, has described President Xi Jinping as a thug, labeled mass detention of Uighur Muslims as unconscionable and accused China of predatory trade practices.And on Capitol Hill, Republicans and Democrats have found rare unity in their opposition to China, with lawmakers eager to take action against Beijing for its handling of Covid-19, forced technology transfers, human rights abuses and its tightening grip on Hong Kong.“China is going to be a punching bag in the campaign,” said Capital Alpha Partners’ Byron Callan. “But China is a punching bag that can punch back.”China has repeatedly rejected U.S. accusations over its handling of the pandemic, Uighurs, Hong Kong and trade, and it has fired back at the Trump administration for undermining global cooperation and seeking to start a “new cold war.” Foreign Minister Wang Yi last month said China had no interest in replacing the U.S. as a hegemonic power, while adding that the U.S. should give up its “wishful thinking” of changing the country.Both sides have already taken a series of regulatory moves aimed at protecting market share.The U.S. is citing security concerns in blocking China Mobile Ltd., the world’s largest mobile operator, from entering the U.S. market. It’s culling Chinese-made drones from government fleets and discouraging the deployment of Chinese transformers on the power grid. The Trump administration has also tried to constrain the global reach of China’s Huawei Technologies Co., the world’s largest telecommunications equipment manufacturer.Meanwhile, China prevented U.S. airline flights into the country for more than two months and, after the U.S. imposed visa restrictions on Chinese journalists, it expelled American journalists. It has stepped up its scrutiny of U.S. companies, with China’s state news agency casting one probe as a warning to the White House. China also has long made it difficult for U.S. telecommunications companies to enter its market, requiring overseas operators to co-invest with local firms and requiring authorization by the central government.One of the most combustible flash points has been the Trump administration’s campaign to contain Huawei by seeking to limit the company’s business in the U.S. and push allies to shun its gear in their networks.The U.S. Federal Communications Commission moved to block devices made by Huawei and ZTE Corp. from being used in U.S. networks. And the Commerce Department has placed Huawei on blacklists aimed at preventing the Chinese company from using U.S. technology for the chips that power its network gear, including tech from suppliers Qualcomm Inc. and Broadcom Inc.After suppliers found work-arounds, Commerce in May tightened rules to bar any chipmaker using American equipment from selling to Huawei without U.S. approval. The step could constrain virtually the entire contract chipmaking industry, which uses equipment from U.S. vendors such as Applied Materials Inc., Lam Research Corp. and KLA Corp. in wafer fabrication plants.The curbs also threaten to cripple Huawei. Although the company can buy off-the-shelf or commodity mobile chips from a third party such as Samsung Electronics Co. or MediaTek Inc., going that route would force it to make costly compromises on performance in basic products.Huawei was on a list the Pentagon unveiled last week of companies it says are owned or controlled by China’s military, opening them to increased scrutiny. The Ministry of Foreign Affairs in Beijing accused the Trump administration of “violating the very market economy principle the U.S. champions.”“We are strongly opposed to this,” the foreign ministry said Sunday of the Pentagon’s designation. “China urges the U.S. to stop suppressing Chinese companies without reason and provide a fair, just and non-discriminatory environment for Chinese companies to operate normally in the U.S.”After the new restrictions, the editor of the Communist Party’s Global Times newspaper tweeted that China would retaliate using an “unreliable entities list” that it first threatened at the height of the trade war last year. Although China didn’t identify companies on the list, the Global Times has cited a source close to the Chinese government as saying U.S. bellwethers such as Apple Inc. and Qualcomm could be targeted.The fallout could extend to companies heavily reliant on Chinese supply chains, as well consumer-facing brands eager to expand sales in Asia. Boeing Co., which recorded $5.7 billion of revenue from China in 2019, and Tesla Inc., the biggest U.S. carmaker operating independently in China, are among companies most exposed if relations sour further.“We’re playing in a much wider field now,” said Jim Lucier, managing director of research firm Capital Alpha Partners. “We’re not simply talking about ‘you tariff me’ and ‘I tariff you.’ The playing field is virtually unlimited.”Planes and AutomobilesU.S. automakers have also been singed. In June, China fined Ford Motor Co.’s main joint venture in the country for antitrust violations, saying Changan Ford Automobile Co. had restricted retailers’ sale prices since 2013.Aviation has been another source of tension, as both countries squabble over access to their skies. China’s decision to limit U.S. airlines operations to those services scheduled as of March 12 hurt carriers such as United Airlines Holdings Inc., Delta Air Lines Inc, and American Airlines Group Inc. that had suspended passenger flights to and from China because of the coronavirus pandemic.The U.S. responded earlier this month by initially threatening to ban all flights from China, then relenting to allow two flights weekly once Chinese officials eased their restrictions. Now, in what appears to be a staged de-escalation, China gave U.S. passenger carriers permission to operate four weekly flights to the country and earlier this month, the Trump administration matched the move by also authorizing four flights from Chinese airlines.It’s happening outside of aviation too. Consider the U.S. government’s decision to seize a half-ton, Chinese-made electrical transformer when it arrived at an American port last year and divert the gear to a national lab instead of the Colorado substation where it was supposed to be deployed. That move -- and a May executive order from Trump authorizing the blockade of electric grid gear supplied by “foreign adversaries” of the U.S. in the name of national security -- have already sent shock waves through the power sector.The effect has been to dissuade American utilities from buying Chinese equipment to replace aging components in the nation’s electrical grid, said Jim Cai, the U.S. representative for Jiangsu Huapeng Transformer Co., the company whose delivery was seized. Although Cai said the firm has supplied parts to private utilities and government-run grid operators in the U.S. for nearly 15 years without security complaints, at least one American utility has since canceled a transformer award to the company, Cai said.Trump’s directive is tied to a broader effort to bring more manufacturing to the U.S. from China. “This is a part of the administration’s efforts to impair China’s supply chains into the United States,” said former White House adviser Mike McKenna.Escalating tensions could jeopardize the U.S. economic recovery as well as China’s trade commitment to buy $200 billion in American goods and services over the next two years. The country’s purchase of U.S. goods increased last month as the economy continued its recovery from the coronavirus shutdowns, but imports are still far behind the pace needed to meet the terms of the phase one trade deal, according to Bloomberg calculations based on data from China’s Customs Administration.U.S.-China struggles also may factor into the November presidential election. Former U.S. national security adviser John Bolton alleges in a new book that Trump asked Xi to help him win re-election by buying more farm products -- a claim the White House has dismissed as untrue.“I don’t expect one single blow to send this relationship in a tailspin,” the chamber’s Brilliant said. “Each side will calibrate their reactions in a way that will not tip the scales too far.”Take the recent spat over media access. After the U.S. designated five Chinese media companies as “foreign missions,” China revoked press credentials for three Wall Street Journal staff members over an article with a headline describing China as the “real sick man of Asia.”Then the Trump administration ordered Chinese state-owned news outlets to slash staff working in the U.S. Beijing responded in March by effectively expelling more than a dozen U.S. journalists working in China.Both the U.S. and China have ample opportunities to ratchet up regulatory pressure. A bill passed by the Senate last month could prompt the delisting of Chinese companies from U.S. stock exchanges if American officials aren’t allowed to review their financial audits.And last week, as the U.S. State Department imposed visa bans on Chinese Communist Party officials accused of infringing the freedom of Hong Kong citizens, a senior official made clear the move was just an opening salvo in a campaign to force Beijing to back off new restrictions on the city.China, similarly, can slow licensing decisions and regulatory approvals, launch investigations under its anti-monopoly law and squeeze financial firms that want to do business in the country. For instance, the country could rescind pledges to let U.S. financial firms take controlling stakes in Chinese investment banking joint ventures, according to a Cowen analyst.“China will not make any significant compromise and will retaliate whenever and wherever possible,” said Shi, the Renmin University professor.Companies are still lured to China and its massive local market -- and tensions with the U.S. don’t overcome the Asian superpower’s appeal. Just one-fifth of companies surveyed by the American Chamber of Commerce in China late last year said they had moved or were considering moving some operations outside of the country, part of a three-year downward trend.But the coronavirus pandemic has subsequently pushed more companies to reckon with the risks of relying too heavily on any single country for their supply chains, amid existing concerns about forced technology transfers, cost and rising tensions that could damp investment in China.China is no longer the lowest-cost manufacturer, and companies are more reluctant to invest there, said James Lewis, director of the Technology Policy Program at the Center for Strategic and International Studies in Washington.“Everyone would like to be in the China market -- everyone wants it to be like 2010 -- but things are changing.”(Updates with trade data in 28th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- South Korean Finance Minister Hong Nam-ki sees a third extra budget pending approval in parliament as the last for this year and said the economic shock from the coronavirus pandemic may have bottomed.South Korea’s economy can still avoid its first annual contraction in more than two decades if stimulus measures including the latest supplementary budget get carried out quickly enough to build on the momentum of improving exports and consumer confidence, Hong said in an interview with Bloomberg on Friday.“We are seeing signs of consumption and exports recovering from May,” said Hong, who also serves as deputy prime minister. “What’s more important than pouring out more measures and money is ensuring that the third extra budget and the series of measures taken in the first half feed through.”The government has so far pledged more than 270 trillion won ($225 billion), or roughly 14% of its gross domestic product, to support businesses and families hit by the pandemic.Though most economists expect South Korea’s GDP to contract this year for the first time since the Asian financial crisis in the late 1990s, Hong reiterated that the government’s 0.1% projection isn’t out of reach if policy efforts are swiftly implemented.While Hong sees a need to focus on passing the third extra budget and implementing measures, lawmakers have a big say in supplementary budget decisions, holding the final key to approvals and often igniting discussions on the need for such spending.Hong’s less pessimistic view on the economy comes amid signs of improvement.Exports may show surprising strength toward the end of the year as major trading partners reopen their economies, Hong said, with chips, ships and medical supplies leading the recovery.South Korea’s exports slumped more than 20% in April and May, but early trade data point to a more moderate fall this month amid resilient chip demand and more purchases from China.“The atmosphere for an improvement of exports is turning more favorable,” he said, while adding that overall shipments will still likely contract for the year.Having flattened the infection curve earlier than most countries, South Korea is now focusing on a post-pandemic growth strategy that fosters new industries. Driving the strategy is President Moon Jae-in’s “New Deal” program, which seeks to create 550,000 new jobs by spending 31 trillion won through 2022, when his term ends.The government will focus its investment on artificial intelligence, bio technology, self-driving cars and other data-intensive industries as their success can spill across other businesses, Hong said.South Korea is keeping a “nervous eye” on China, whose “Made in China 2025” plan overlaps with its ambitions in many technology sectors, he said. Still, it’s the private-sector investment that holds the key to maintaining South Korea’s competitive edge, Hong added, commending Samsung Electronics Co., SK Hynix Inc. and LG Display Co. for their recent decisions to expand production lines.Launching new businesses is also central to finding the next growth engine, he said, adding that only 0.8% of half a million college graduates in Korea begin startups compared with 8% of 7 million graduates in China.South Korea Bets on ‘Untact’ for the Post-Pandemic EconomyHong said the pandemic has prompted South Korea to rethink its dependence on factories abroad, with the government planning to announce supply-chain reshaping measures in July to better absorb future shocks from outside.Hong expressed confidence in South Korea’s economic resilience, but said he was anxious about the possibility of its credit rating being changed as the government ratchets up spending and economic difficulties grow.The government’s stimulus measures are expected to push up South Korea’s debt-to-GDP ratio to about 43%, but that’s still very low compared with the OECD average of around 110%, Hong said.South Korea still has fiscal room for further action, though the pace of debt increase could be a concern, he said. The government is looking to propose rules limiting debt accumulation in late August, he added.The Bank of Korea has also done its part to avert a deeper downturn, cutting rates to a record 0.5% and providing unlimited liquidity via repurchase agreements. While pledging to keep monetary policy accommodative until the economy recovers, Governor Lee Ju-yeol recently flagged the need to prepare for an eventual policy normalization to prevent financial distortions.Hong said he understands Lee’s concerns from a monetary policy perspective, but added that the focus must stay on economic recovery for now.“The timing is too early to talk about normalizing the supply of liquidity as many companies are still complaining about a lack of liquidity,” Hong said.As for ongoing minimum wage discussions for next year, Hong said the economic situation under the coronavirus should be considered by the committee that sets the rate of increase, as well as the welfare of workers.The minimum wage rose by double digits in 2018 and 2019 after Moon took office vowing better living standards for workers. The pace slowed to 2.9% for this year amid a backlash from businesses.Asked about his biggest concern of late, Hong mentioned the “For Rent” signs on streets he saw during his 10-minute ride to work that point to more business closures.“That hurts,” he said. “The pressure to get an economic recovery going as early as possible is what keeps me awake at night.”(Adds Hong’s comments on entrepreneurship, business closures)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Samsung heir-apparent Jay Y. Lee scored a symbolic public victory Friday after a civilian review panel recommended against indicting the billionaire on charges of corruption.The panel, convened after Lee’s lawyers invoked the rarely used system in an effort to undermine prosecutors, voted in favor of halting an indictment, a spokesperson for the supreme prosecutors’ office said by phone. While not legally binding, that judgment could prove difficult to contravene. “We respect the decision made by the committee members,” Lee’s attorneys said in a statement. “We are thankful that the panel gave an opportunity for Samsung and vice chairman Jay Y. Lee to overcome the current crisis by focusing on business activities.”In most legal systems of the developed world, public prosecutors get to decide which cases to pursue, with judges or juries acting as a check by determining the ultimate verdict. In South Korea, the approach is a little different.The country has established an unusual process that allows suspects to call for an independent panel of experts to review prosecutors’ investigations. The highest-stakes case since this novel system was established in 2018 was heard Friday when lawyers for the billionaire scion of Samsung Group tried to convince a panel his prosecution for alleged financial crimes would be unfair.Attorneys for Lee, de facto leader of Samsung Electronics Co., squared off Friday against government prosecutors before 14 academics, legal experts and civil activists.Lee, embroiled in an increasingly contentious dispute with Korean prosecutors over allegations of bribery and accounting manipulation, represents the biggest test so far of a civil committee system created to help check prosecutors’ powers. Friday’s panel served as a barometer for how the public views the Samsung chief’s culpability as well as a test of the legitimacy of prosecutors, whose leader in Korea is appointed by the president.Lee’s attorneys -- who invoked their right to convene that group -- gambled the panel will rule in his favor, particularly after prosecutors failed this month to win an arrest warrant for the executive. Samsung, the world’s largest smartphone and memory chip maker and a symbol of Korea’s decades-long economic ascent, spent millions in past months on initiatives to battle Covid-19, including the widespread testing that’s proven instrumental in curbing the pandemic at home.“If the panel decides the case is not indictable, prosecutors will be put under immense pressure, and that’s what Samsung is aiming for,” Park Ju-gun, president at corporate research firm CEOScore.com, said before the panel’s recommendation was announced.Read more: Samsung Billionaire’s Fate at Risk Despite Role in Virus FightBefore Lee’s request, few outside of legal circles had even heard of the civil panel option. Adopted as part of prosecution reforms under the Moon Jae-in administration, it’s similar to the grand jury system except the panel members are chosen -- at random -- by the supreme prosecutors’ office from an existing pool of several hundred previously vetted names.Now, the little-known system proved pivotal to a case that’s spurred nationwide controversy, pitting the country’s most powerful chaebols, or conglomerates, against government agencies that have pledged to diminish their influence and cozy ties to the Blue House.South Korea’s special prosecutors first indicted Lee in early 2017 on charges of bribery and corruption, alleging that Samsung provided horses and other payments to a confidante of the former president to win support to help ease his succession. The case heard Friday was related and centers on whether Lee and Samsung used illegal means to help him take control of the conglomerate founded by his grandfather.Why Samsung’s Billionaire Scion Is Facing Jail Again: QuickTakeThe current probe kicked off after regulators concluded Samsung Biologics Co. intentionally violated accounting rules and inflated its value ahead of an initial public offering. Prosecutors suspect the violation was intended to justify the merger ratio between Biologics’ major owner, Cheil Industries, and Samsung C&T. That in turn helped bolster the value of the heir’s stake in Cheil and his influence at Samsung Group. The Biologics unit has said it didn’t violate accounting standards. Lee’s attorneys, which include several former senior prosecutors, may argue to the panel that the Biologics transactions were legitimate and approved by authorities at the time.Lee also counted on his image as a virus-fighter and national business leader to not just win a favorable panel review on Friday, but also more broadly influence the ongoing trial, said Lee Sang-hun, analyst at HI Investment & Securities. Beyond Samsung’s highly visible battle against Covid-19, Lee scored points last month after he issued a rare public apology for past mis-steps, and vowed never to pass Samsung’s reins to his children.Prosecutors have mostly followed the panel’s decision in past cases, according to local media. They can ignore an unfavorable outcome and move forward with an indictment -- but that risks angering the populace. Public opinion is so important in Korea it’s been known to sway court verdicts. Lee’s request for a panel has incensed prosecutors, who regard the move as an attempt to circumvent the legal process by appealing to a third party.“Samsung is striving to reduce legal risks with support from public opinion,” said Lee of HI Investment & Securities.Read more: Court Rejects Arrest of Samsung’s Lee in Succession Probe(Updates with comment from Lee’s lawyers in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The U.S. campaign to hamstring China’s Huawei Technologies Co. is gaining fresh impetus as the Trump administration chokes off supplies of vital microchips and Beijing causes dismay on both sides of the Atlantic with its stance on Hong Kong and the coronavirus.The U.K. is reconsidering its embrace of Huawei while carriers in Denmark and Singapore have chosen other providers for their telecommunications networks. Meanwhile, Germany and France are reassessing the role of the company that the U.S. accuses of theft, sanctions busting and providing an avenue for espionage.Only months ago, the U.S. was struggling to persuade its allies not to use Huawei’s equipment. But in May, Washington moved to handcuff Huawei to outdated technology by denying it chips made with U.S. techniques. The change could turn Huawei into a permanent laggard, unable to update and maintain cutting-edge 5G networks that will be communications backbones for decades to come.At the same time, politics have been unkind to Huawei’s ambitions. Officials in Europe and the U.S. have criticized China over its handling of the Covid-19 pandemic. And Beijing drew condemnation for preparing national security laws for Hong Kong, a step seen as a threat to the city’s autonomy.“Two years ago no one worried about buying Huawei - that’s not true any more,” said James Lewis, director of the technology policy program at the Center for Strategic & International Studies in Washington. He sees “some progress,” in swaying other countries to ban Huawei “although well short of a total ban.”President Donald Trump is boasting of success, saying in a recent interview with the Wall Street Journal, “Look how tough I’ve been on Huawei. Nobody has been tougher than me.”The U.S. says Huawei is a threat to security for the fifth-generation, or 5G, wireless systems that are beginning to be deployed around the world. The networks promise speed and ubiquity: a thick forest of always-on links to billions of devices in homes, factories, surgical suites and autonomous vehicles. As more and more devices and networks are connected, vulnerability to hacking or espionage grows apace.Because Huawei is subject to control by China’s ruling Communist Party, it can be compelled by law to cooperate with the country’s security apparatus, and has been implicated in espionage, according to the State Department. The Pentagon chimed in Wednesday, sticking Huawei on a list of 20 companies it says are owned or controlled by China’s military, opening them up to potential new US. sanctions.Rob Manfredo, a U.S.-based spokesman for Huawei, didn’t respond to a request for comment.Huawei has denied allegations of spying, saying it would lose customers if it weren’t trustworthy. The Shenzhen-based company says it’s a private business that can’t be directed by Beijing, and that no Chinese law requires private national companies to engage in cyber-espionage.Chip BanThe Commerce Department’s ban in May of the sale of any silicon made with U.S. know-how was a potentially crippling blow to China’s tech champion. Huawei’s stockpiles of certain self-designed chips essential to telecom equipment will run out by early 2021, people familiar with the matter have said. While Huawei can buy off-the-shelf or commodity mobile chips from a third party like Samsung Electronics Co., it couldn’t possibly get enough and may have to make costly compromises on performance in basic products, they added.The chip restrictions add “uncertainty and potential costs” that could leave Huawei unable to meet commitments to build and maintain networks, said Robert Williams, executive director of the Paul Tsai China Center at Yale Law School. “The trade-offs between cost and security risks may look different now than they once did to the U.K.”Huawei’s position is sharply contested in Britain.The U.K. in January barred Huawei from sensitive core network components and high-risk areas like nuclear-power sites, but said the Chinese company could still constitute as much as 35% of networks’ 5G and fiber equipment elsewhere.That prompted an angry phone call from Trump to U.K. Prime Minister Boris Johnson. The Trump administration has said any country that uses an “untrustworthy” 5G vendor jeopardizes intelligence sharing with the U.S. That would strike at the heart of the traditional “Five Eyes” security alliance linking the U.S. and U.K., along with Australia, Canada, and New Zealand to cooperate on espionage.The U.K.’s January decision also triggered a rebellion of junior lawmakers in Johnson’s Conservative Party. Since then, Hong Kong and Covid-19 have helped to harden their stance.U.K. government officials now are seeking ways to phase the company out in as little as three years.“There’s been a pretty effective relentless American campaign,” said Sam Armstrong, spokesman for the Henry Jackson Society, a London-based policy group that has argued for blocking Huawei from the U.K.’s 5G networks. “The evidence in Parliament and the threats to Five Eyes intelligence-sharing arrangements have all contributed to a sense that this has had a seriously undermining effect on our trans-Atlantic relationship.”Despite the storm clouds obscuring its future in the U.K., Huawei committed Thursday to invest $1.2 billion in a research and development center near the English city of Cambridge, drawing criticism from a former leader of the ruling Conservative party. It said the timing was coincidental and the plans had been in the works for years. Growing TensionThe issue is fraught in other European countries, too. The company is losing luster in Europe after winning contracts across the continent, said John Strand, a consultant based in Copenhagen.“Around Europe, there is a growing focus on the use of Chinese equipment including Huawei,” Strand said in an interview. “When it comes to Hong Kong, it obviously has an impact.”Strand predicted other countries would follow paths such as those taken by Denmark, where the biggest phone company TDC A/S in March chose Stockholm-based Ericsson AB to build its 5G network, rather that its existing supplier Huawei. Earlier, Energy Minister Lars Christian Lilleholt highlighted security considerations for 5G, without mentioning Huawei.Such moves would represent a change of momentum for a beleaguered U.S. campaign, said Justin Sherman, a fellow at the Atlantic Council’s cyber-statecraft initiative.“There are many countries that have not done what the U.S. wanted,” including Germany, France and Italy, Sherman said. “There’s legitimate reason to be concerned about Huawei’s position on the 5G networks,” he said.U.S. diplomats say Ericsson and Finland’s Nokia Oyj build 5G gear and can be alternatives to Huawei. The European providers have struggled to compete with Huawei and ZTE Corp. equipment that’s often cheaper and at least as capable.“5G systems carry the most private information and intellectual property. It comes down to one question: Who do you trust?” Keith Krach, the U.S. undersecretary of state for economic affairs, said in an interview. “People are realizing that Huawei’s 5G is the backbone of that surveillance state.”U.S. officials point to progress in persuading allies, citing the European Union’s January adoption of a policy that said companies based in non-democratic countries could be excluded from parts of the network. The EU stopped short of an outright ban on Huawei.The German government is struggling to settle on rules that would require security certification for vendors in the 5G network. Earlier senior Chinese officials highlighted German car companies – the crown jewel of Europe’s biggest economy – as a potential target for retaliation if Huawei is banned from their markets. China is the biggest single market for Volkswagen AG, BMW AG and Mercedes-Benz maker Daimler AG. German Chancellor Angela Merkel has resisted a blanket ban on Huawei from 5G networks.France won’t ban any equipment maker from its 5G network, but will seek to protect critical infrastructure, finance minister Bruno Le Maire said earlier this year. With a spectrum auction set for September, carriers including Bouygues SA await a decision from the French cyber security agency Anssi on whether Huawei can be part of their plans. In a tweet earlier this week, U.S. Secretary of State Mike Pompeo praised France’s leading phone company Orange SA, calling it a “clean” telecom carrier after it picked “trusted” 5G equipment suppliers Nokia and Ericsson in January.Italy hasn’t moved against Huawei, though it has adopted rules to closely monitor telecommunications equipment suppliers, and scrutinize gear that comes from outside Europe. Italy has pursued a friendly approach with Chinese investors and especially with Huawei, which has poured money into the country, financing research centers, universities and schools.In Canada, Prime Minister Justin Trudeau has been stalling a decision on whether to ban Huawei from 5G wireless networks. Tensions between the two countries have been rising since Canadian authorities arrested Huawei Chief Financial Officer Meng Wanzhou on a U.S. extradition request in late 2018. After her arrest, China put two Canadian citizens in jail, halted billions of dollars in Canadian imports and put two other Canadians on death row. On June 2, two major Canadian wireless companies -- BCE Inc. and Telus Corp. -- said they’d build out their 5G wireless networks with equipment from Ericsson and Nokia.India has allowed Huawei to participate in trials, but the company’s entry into the country’s 5G commercial network could be blocked as tensions persist following border clashes with China. India is the largest wireless market outside China by number of subscribers, and has been a focus for investment by Huawei.“The tide is turning against Huawei as citizens around the world are waking up to the danger of the Chinese Communist Party’s surveillance state,” Pompeo said in a statement Wednesday.(Updates to add reference to U.K. development site in 19th paragraph. An earlier version of this story was corrected to fix the spelling of Huawei in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A top-performing fund manager who bought Amazon.com Inc. and Alphabet Inc. more than a decade ago is betting on winners from the Covid-19, believing the pandemic will fundamentally change people’s lifestyles.Mark Urquhart, who helps manage Baillie Gifford & Co.’s Long-Term Global Growth Equity Fund, says he’s picking up companies that may benefit from the growing trend of online and stay-at-home services, as the prolonged spread of the coronavirus will eventually alter consumer behavior.“We’ve been looking at companies that can benefit in the long-term from changes,” said Urquhart, who works at the $245 billion Edinburgh-based firm. “What the virus has done is accelerated some of the changes, perhaps open people’s minds, to consuming in different ways. And they realize the convenience. The economy is being more flexible. We see these companies will be larger in 10 years.”The fund is beating 99% of peers in three-year annual returns and is ahead of 62% of them year to date with a gain of 37%, according to Bloomberg-compiled data.Along with Netflix Inc. and Tencent Holdings Ltd, the fund has bought Netherlands-based payments platform Adyen NV. Tencent-backed Chinese food delivery giant Meituan Dianping is also a favorite, as is interactive exercise firm Peloton Interactive Inc.Adyen is “a company that we think benefits from many of the ongoing trends of people shopping more remotely,” Urquhart said. “Consumers won’t recognize the brand, but it’s very important.”The fund’s high returns come from its bottom-up investing, with managers looking for industry disruptors. Top holding Amazon, which makes up 8.46% of the fund, was one of its initial picks when the fund was first initiated in 2005. The stock has risen 5,892% since then. Alphabet was added in 2008, followed by Tencent and Baidu Inc. in 2010, with Alibaba Group Holding added in 2015.In South Korea, Urquhart says he’s watching Softbank Group-backed e-commerce giant Coupang Corp., which is reported to be preparing an initial public offering as soon as 2021, rather than industrial stocks or conglomerates like Samsung Electronics Co.“I’m interested in Coupang, it’s a classic disrupting company,” he said. “We had held Samsung in the past, at the moment we don’t find growth prospect as attractive.”(Adds a super tout)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Arm Ltd., the chip designer owned by SoftBank Group Corp., ousted the head of its Chinese venture after discovering the executive had set up an investing firm that would compete with its own business in China, according to people with direct knowledge of the decision.Arm China Chief Executive Officer Allen Wu established a fund called Alphatecture whose aim is to invest in companies that use Arm technology, said the people, who requested anonymity discussing a personnel decision. It’s common -- and legal -- for chip companies to use investment divisions to provide financial help to fledgling companies that can’t otherwise afford their typically pricey components. But the problem in Wu’s case is that Arm Ltd. and partner Hopu Investment Management Co., which together are major backers of the venture, already have one of these funds. Wu’s move put him in direct competition with his employers, the people said.The tussle between Wu and U.K.-based Arm Ltd. is playing out against the backdrop of escalating tension between China and the U.S. over leadership in key technologies. Arm Ltd., whose semiconductor designs underpin the majority of the world’s mobile devices, relies on Chinese companies including Huawei Technologies Co. for a large portion of its global revenue, and leans on Arm China to help it conduct business in the world’s biggest smartphone market.Arm China called the allegations against Wu’s fund “inaccurate and misleading.” “Arm China has been pursuing an innovative business model which has consisted in building an ecosystem of downstream businesses to support its growth. Investments associated to our ecosystem have not created any conflict to Arm China,” the unit said in a statement emailed to Bloomberg News.Read more: SoftBank’s Arm Says China CEO Fired for Major Irregularities (1)The rationale for Wu’s dismissal was also outlined in a document, reviewed by Bloomberg, from SoftBank Chairman Masayoshi Son and Arm Ltd. Chief Executive Officer Simon Segars to Hopu Chairman Fang Fenglei. The document cited breach of contract and the decision to set up the fund. Arm Ltd. and Hopu previously explained Wu’s dismissal by saying he was removed after an investigation uncovered rule violations and conflicts of interest that it didn’t specify. Bloomberg first reported the firing this month.What followed was a public, acrimonious clash between Arm Ltd. and Wu, who refused to budge and used the Chinese venture’s WeChat account to amplify his defiance. That Arm and Hopu have been unable to assert their will reflects the intricacies of Chinese rules that confer an advantage to Wu as the holder of key registration documents. As the legal representative of Arm China, Wu holds the company’s registration documents and the company seal, or stamp. Changing the legal representative requires taking possession of the company stamp -- something Wu has refused to give up. Arm Ltd. and Hopu could go through the courts, but the process could take years.Arm Ltd. and Hopu plan to use the document to lobby government officials in Beijing in what will be a test of China’s interest in reassuring overseas investors.Arm Ltd.’s management dispute constitutes another headache for SoftBank, which in May reported a record operating loss triggered by the writedown of portfolio companies at its Vision Fund arm. Many Vision Fund investments, including Uber Technologies Inc., tumbled in the wake of the global coronavirus pandemic, which has curtailed demand for ride hailing and other sharing economy players that Son has long favored.Read more: SoftBank’s Masa-Misra Partnership Strained by Losses, InfightingIn 2016, SoftBank bought Arm Ltd. -- which then operated under a different name -- for $32 billion, its second-largest acquisition after Sprint Corp., initially gaining full control over the Chinese subsidiary. SoftBank ceded a majority stake in 2018 and now owns 49% through Arm Ltd. The consortium that bought 51% of Arm China includes China Investment Corp., the Silk Road Fund and Singaporean state investment firm Temasek Holdings Pte.Following the investigation of Wu by Arm Ltd. and Hopu, the Arm China board voted 7-1 to dismiss Wu. Given Wu’s refusal to vacate his role, Arm Ltd. is growing anxious over the security of Arm China’s intellectual property, assets and finances, according to the people with knowledge of the matter. If it can’t dislodge Wu in a timely manner, Arm Ltd. would consider suspending support to Arm China. Such a step would be a last resort, said the people.Arm Ltd. licenses the fundamentals of chips for companies that make their own semiconductors. It also sells processor designs and is trying to expand into servers and PCs. Arm typically maintains a low profile, licensing its designs and collecting royalties via consumer brand corporations from Apple Inc. to Samsung Electronics Co.The dispute over Wu’s status, however, thrust it into the spotlight, igniting a plethora of stories online about how the U.S.-educated executive was still Arm China’s legal head honcho. Wu himself was cited several times in local media pledging to work with Huawei Technologies last year, when Washington first banned the sale of American software and circuitry to the Chinese tech champion.Read more: Arm Offers Faster, Customizable Design to Help Android Phones(Updates with Arm China’s comments in from the fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Global trade data in the Covid-19 era has been generally abysmal, but look a little closer and the electronics sector that fires Asia’s trade engines could be headed for a pretty good year.In South Korea, semiconductor exports rose in May and imports of equipment used in producing semiconductors surged 168%, trade ministry data show. Taiwan’s electronic-component exports, which include chips, grew 13.2% in May to $10.2 billion, even as total exports fell 2% from a year earlier.The electronics industry is holding up relatively well amid the pandemic as companies adopt new technologies -- including 5G equipment and automation tools -- that make it easier for employees to work remotely. A sustainable boost will depend on whether consumers return with similar vigor, and whether other factors such as U.S.-China tensions don’t interfere with digital demand and supply.“The tech industry seems to have decoupled from the overall economy somewhat, as the tech industry is still growing well” and has been “relatively immune to Covid-19,” Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co., said at a shareholder meeting June 9.Read More: Little-Known Data Show Signs of a Tech Bounce: Tim CulpanTSMC, the main chipmaker for Apple Inc. and Huawei Technologies Co., still plans to spend as much as $16 billion on capacity upgrades and technology this year, and expects revenue gains in the mid- to high-teens, Liu said. Covid-19 has helped drive some budding technologies related to remote work and education and social distancing, he added.TSMC shares have risen 25% since their lowest close for the year on March 19, less than the 30% gain in Taiwan’s benchmark Taiex stock index in that time. TSMC shares were down 2.2% as of 1:32 p.m. Monday, compared to a 0.98% drop in the Taiex.Amid generally awful export figures from the region, “the one bright spot is semiconductors,” said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “A lot of this reflects the product cycle and also the global lockdown and suppression that favor the ‘digitalization’ of economic activities, driving demand for electronic goods like chips.”Budding TechnologiesFor economies like South Korea and Taiwan that rely on tech exports, “the upturn in demand for electronics has been a pillar of support amid the coronavirus pandemic,” said Lloyd Chan, an economist at Oxford Economics Ltd.“However, the improvement in the tech sector won’t be able to offset significant demand weakness in non-electronic exports,” he said, adding that even the surge in PC demand “could be a one-off,” attributable to the sudden shift to telecommuting during the pandemic.Still, it helps that some of Asia’s most tech-focused economies have had relative success in containing the virus: Taiwan has reported just seven virus deaths, South Korea flattened its curve fairly early and Singapore’s fatality rate is among the world’s lowest. That gives momentum to efforts to restart tech engines and get consumers used to new ways of doing business.“We’re seeing more countries pledging economic reforms, and there’s increased urgency for a stronger technology push to lead the economic recovery,” said Zhao Defa, an economist at Continuum Economics in Singapore. “Given that South Korea and Taiwan are the world’s main semiconductor producers, they will be beneficiaries.”Some of the boom is specific to the health crisis, amid a global scramble for medical equipment and demand for video-conferencing and other technologies as work and school shift more to people’s homes.China’s medical exports and shipments of high-tech electronics jumped in both April and May, for example, while Singapore’s pharmaceutical shipments surged 174% in April from a year earlier. Further gains may not be as pronounced.Consumer demand is still lagging, though. South Korean shipments of computer products jumped 83% in May, their eighth straight monthly gain, but sales of smartphones dropped 22% and consumer appliances fell 37%. Globally, smartphone shipments are expected to fall 11.9% this year -- their biggest annual drop ever, according to data from research firm IDC.While 5G, high-performance computing and artificial intelligence will all create demand for Taiwan’s exports, setbacks from Covid-19 and U.S.-China tech tensions could constrain that progress, Beatrice Tsai, director-general of the statistics department at Taiwan’s Ministry of Finance, said June 8.Still, analysts at Citigroup Inc. see a risk that U.S.-China tensions will weigh on chip demand. China’s buildup of chip inventories was intended partly to get ahead of a U.S. ban on Huawei set to take effect later this year.China’s export orders have taken a hit from lockdowns in the U.S. and key European markets, said Rajiv Biswas, APAC chief economist at IHS Markit. A second-half recovery in those economies, as well as Christmas orders, could drive a rebound in tech exports, he said.Governments have tried to stay focused on the long view, aiming to take advantage of the tech sector’s relative advantage in the pandemic by providing special support for electronics firms and new technologies. Singapore pledged S$500 million ($360 million) last month to help businesses in their digital transformations, including moving hawker center stalls to e-payments, and is spending another S$3.5 billion on information and communications technology to mitigate the virus outbreak.When the virus’s spread threatened Vietnam’s burgeoning tech industry, the government granted an exception to its otherwise strict lockdown measures: Samsung Electronics Co., which makes about half of its smartphones in factories near Hanoi and is one of Vietnam’s largest investors, was allowed to shuttle in more than 1,000 engineers from South Korea.“The recovery will be digital,” Anand Swaminathan, senior partner and head of McKinsey Digital in Asia, said in a June 9 interview. Asian governments are “all starting to figure out what their investment strategy is on digital.”(Updates market levels in sixth paragraph, adds analyst quote in eighth and ninth paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Fifth-generation networking hype has been in full force since Qualcomm Inc. declared “5G is here, and it’s time to celebrate” in February of last year. The reality, however, has required patience from consumers due to the time needed to roll out the new networks and the dearth of applications to put additional speed to compelling use.A year after South Korea launched the world’s first full commercial 5G network and months after China opened the world’s biggest, Bloomberg News reporters tested the leading carriers in both countries to see how far 5G has gotten. Tests in Hong Kong and Tokyo showed similar results -- gaps in coverage that could leave most early adopters waiting for networks to reach full speed.Smartphone makers have swept in with a flood of 5G devices this year, with Samsung Electronics Co., Huawei Technologies Co. and Xiaomi Corp. all pushing the new technology without asking for much higher prices or design compromises. Millions of 5G phones have already been sold, and for the billions of people not yet on the bandwagon, the new wireless standard will soon be the default option anyway.Carriers aren’t moving quite as fast. They’re investing billions of dollars to set up and expand their 5G networks, but the technical design of this new standard demands high network density to provide the advertised stratospheric speeds. Once they have enough masts in place, they aim to recoup the initial costs by offering more bandwidth-hungry add-ons, such as Nvidia’s GeForce Now game-streaming service, which SoftBank Corp. launched in Japan on June 10.Where it’s available, even without hitting its max theoretical speeds, 5G is an impressive upgrade for most consumer applications. For example, at a gigabit per second (1Gbps), a user could download a 9-hour audiobook in less than 1 second, according to Fastmetrics, a U.S.-based internet service provider. Even at 1/10 of that speed, 100 megabits per second, a 45-minute TV show takes only 16 seconds, Fastmetrics estimates.Carriers in North America, Europe and Australia have also set up 5G, with so far underwhelming results for consumers. In March tests conducted by RootMetrics in the U.S., the choice appeared to be between fast speed with negligible availability -- Verizon Wireless Inc. recorded a max speed of 846Mbps with 3.1% availability in Chicago -- or wider availability without much of a speed bump -- T-Mobile US Inc. covered 57% of Washington but at a less impressive 148Mbps.While 5G uptake has been incremental, companies that make parts for the phones are betting on a wave of upgrades to drive smartphone demand and help spur economies from Taiwan to South Korea.Read more: 5G Report Card: T-Mobile Has Widest Coverage, Verizon Is FastestTo test download speeds and coverage, we sent four reporters out into Seoul, Beijing, Tokyo and Hong Kong with 5G phones and speed-measuring apps. Here’s what those tests showed:SeoulKT, the No. 2 South Korean carrier, has improved 5G service since the commercial debut in April 2019, though it still lacks the high-frequency airwaves necessary to reach top download speeds in the range of 20Gbps. SK Telecom Co., the country’s largest carrier, achieves a download speed of 1.5Gbps inside its headquarters, which drops to 1Gbps in the same building’s lobby.KT’s average 5G data speed ranges between 800Mbps to 1Gbps, the company said in an email. “It is hard to simply compare data speeds in South Korea, which has nationwide services, with other countries that only have test services or have services in a few cities,” the company said.BeijingIn Beijing, tests using a Huawei P40 Pro phone showed 5G service was consistent enough to play high-definition (1080p) video while riding in a car. There was no 5G signal inside the subway and the shopping mall in Guomao, where luxury brands from Tiffany to Vacheron Constantin are sold. Most of the Zhongnanhai district, home of the central government, has no 5G coverage, according to a map provided by China Mobile.A China Mobile representative in Beijing emailed a video showing download speed exceeding 1.1Gbps at Beijing Daxing International Airport. The representative had no further comment.Hong KongTests using a Huawei P40 Pro showed streaming of high-resolution 4K video was smooth outdoors even in a moving vehicle. The fastest download speed was recorded in the carrier’s flagship store in the city’s central business district.The carrier expects its 5G network to “penetrate deeply” in Hong Kong, Alex Cheng, China Mobile principal engineer, said in an email.TokyoAt two locations in the city, the 5G signal was strong inside the Docomo shop but became unstable a short distance away from it, using a Samsung Galaxy S20 phone and Netflix’s speed test app. Both of Tokyo’s main airports, two Olympics facilities and Tokyo Sky Tree are among the covered spots. Two more waves of 5G network expansion are planned by the end of July and end of October, the carrier said.“The initial rollout is going as planned,” Docomo said in an email.(Adds that anticipated 5G smartphone demand is driving chipmakers in seventh paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Arm Ltd.’s Chinese joint venture rejected allegations against its top executive and accused a prospective replacement of “major violations,” escalating a dispute with the semiconductor industry linchpin owned by SoftBank Group Corp.The tit-for-tat duel began Wednesday when SoftBank’s Arm Ltd. said the board of Arm China voted to oust Chief Executive Officer Allen Wu, and appointed Ken Phua and Phil Tang the venture’s interim co-CEOs. But the Chinese firm then said Wu remained in charge and the board’s decision carried no legal weight. Arm China is jointly owned by Arm and investors, including China’s sovereign wealth fund, an unwieldy group that has left unclear who ultimately makes leadership decisions.After Wu refused to step aside, Arm Ltd. disclosed to Bloomberg News it had conducted an investigation of the CEO that uncovered conflicts of interest and violations of employee rules. On Thursday, the Chinese venture responded by calling the allegations against Wu groundless. And in a new twist to the dispute, it said Tang himself had been dismissed May 26 for unspecified “major violations,” and no longer held any position within the company.“Arm’s public announcements are groundless and caused significant damage to the company and Allen Wu’s reputation,” according to a statement posted to its WeChat social media account. “We’ve engaged lawyers to explore our legal options.”Read more: SoftBank’s Arm Says China CEO Fired for Major IrregularitiesArm Ltd. spokesman Phil Hughes said Thursday the British company stood by previous statements on the matter. Tang wasn’t immediately available for comment. And Wu himself hasn’t responded since Wednesday to multiple emails and messages seeking comment. “The Arm China board investigated and found no evidence to support the allegations made by Mr. Wu against Phil Tang. Phil Tang was therefore reinstated by the Board of Arm China,” Hughes said in an emailed statement.SoftBank Group shares slid 3.2% in Tokyo trading.Control over the Arm China business is complicated because of its convoluted ownership structure. SoftBank’s acquisition of Arm in 2016 originally gave it full control over the Chinese subsidiary, but SoftBank ceded a majority stake in 2018 and now owns 49% through Arm Ltd. The consortium that bought 51% includes China Investment Corp., the Silk Road Fund and Singaporean state investment firm Temasek Holdings Pte.The spat comes at a sensitive time, when Western companies are struggling to navigate an escalating clash between Washington and Beijing over technology leadership. Any prolonged conflict could also have ramifications for Arm, whose semiconductor architecture underpins the majority of the world’s mobile devices. The British firm relies on Chinese names like Huawei Technologies Co. for a large portion of its global revenue, and leans on Arm China to help it conduct business in the world’s biggest smartphone market.Arm typically maintains a low profile, licensing its designs and collecting royalties via consumer brand corporations from Apple Inc. to Samsung Electronics Co. The dispute over Wu’s status, however, thrust it uncharacteristically into the spotlight, igniting a plethora of stories online about how the U.S.-educated executive was still Arm China’s legal head honcho. Wu himself was cited several times in local media pledging to work with Huawei last year, when Washington first banned the sale of American software and circuitry to the Chinese tech champion.Read more: Arm Offers Faster, Customizable Design to Help Android PhonesSoftBank acquired Arm for $32 billion in one of its largest acquisitions, a deal intended to further Masayoshi Son’s ambition of creating a global Internet of Things ecosystem. The company licenses the fundamentals of chips for companies that make their own semiconductors, and also sells processor designs. Most of the world’s smartphones depend on Arm’s technology, and it is trying to expand into servers and PCs.It’s unclear how the public dispute would affect Arm’s relationships in the world’s No. 2 economy. Arm China now operates offices in Shenzhen, Beijing and Shanghai and acts as an intermediary between Arm in the U.K. and clients like Huawei.The company has been ensnared in Washington’s campaign against Huawei because of its central role in semiconductor architecture. The U.S., home to many of the world’s chipmakers and a chunk of Arm’s operations, wants to block Huawei’s access to key chip technology after labeling the company a national security threat -- something the Chinese firm has consistently denied.The British company has said it will comply with the so-called U.S. Entity List restrictions. It continues to supply technology to Huawei’s HiSilicon, but it’s unclear if it can license future designs to the Chinese company.Read more: Silicon Valley’s Next Revolution Is Open Source Semiconductors(Updates with SoftBank shares in sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- SoftBank Group Corp.’s Arm Ltd. and its Chinese venture clashed publicly over whether the venture’s CEO had been fired, a dispute that threatens to disrupt a Western company central to the global semiconductor industry.The conflict erupted after the British firm told Bloomberg News the board of Arm China -- jointly owned by Arm and investors including China’s sovereign wealth fund -- voted to oust Chief Executive Officer Allen Wu. Hours later, Arm China posted a statement to its official WeChat account asserting he was still in charge, a stance repeated across domestic social media. The U.K. firm then fired back to say Wu had been dismissed after an investigation uncovered undisclosed conflicts of interest and violations of employee rules.“Following a whistleblower complaint and several other current and former employee complaints, an investigation was undertaken by Arm Limited,” the company said in its latest statement, jointly issued with shareholder Hopu Investment. “Evidence received from multiple sources found serious irregularities, including failing to disclose conflicts of interest and violations of the employee handbook.” Wu didn’t respond to emails and a message sent via his LinkedIn profile seeking comment.The spat comes at a sensitive time for Arm and its 49%-owned Chinese affiliate, when Western companies are struggling to navigate an escalating clash between Washington and Beijing over technology leadership. Any prolonged conflict could also have ramifications for Arm, whose semiconductor architecture underpins the majority of the world’s mobile devices. The British firm relies on Chinese names like Huawei Technologies Co. for a large portion of its global revenue, and leans on Arm China to help it conduct business in the world’s biggest smartphone market.Arm typically maintains a low profile, licensing its designs and collecting royalties via consumer brand corporations from Apple Inc. to Samsung Electronics Co. The dispute over Wu’s status, however, thrust it uncharacteristically into the spotlight, igniting a plethora of stories online about how the U.S.-educated executive was still Arm China’s legal head honcho. Wu himself was cited several times in local media pledging to work with Huawei last year, when Washington first banned the sale of American software and circuitry to the Chinese tech champion.“Arm is a U.K.-based company but they have a huge amount of activities in the U.S. and in the U.S. ecosystem,” said Alex Capri, a research fellow at the Hinrich Foundation. “What could make this really messy is that the US could start to put pressure on Arm to cut off its Chinese entity.”He pointed to Washington’s prior move to stop Dutch semiconductor equipment maker ASML’s supply of advanced technology to China. Capri said potential U.S. pressure on Arm may prod its Chinese venture to try and operate as a standalone or separate entity, but that will still have huge implications for Huawei, whose chipmaking unit HiSilicon depends on Arm’s designs.“This is what Arm China’s going to do -- embed itself in a ringfenced Chinese operation, but it will be super messy,” Capri said.How Huawei Landed at the Center of Global Tech Tussle: QuickTakeSoftBank acquired Arm for $32 billion in 2016 in one of its largest acquisitions, a deal intended to further Masayoshi Son’s ambition of creating a global Internet of Things ecosystem. The company licenses the fundamentals of chips for companies that make their own semiconductors, and also sells processor designs. Most of the world’s smartphones depend on Arm’s technology, and it is trying to expand into servers and PCs.Arm China was then formed in 2018 when SoftBank sold 51% of the subsidiary to a consortium that included China Investment Corp., the Silk Road Fund and Singaporean state investment firm Temasek Holdings Pte. It now operates offices in Shenzhen, Beijing and Shanghai and acts as an intermediary between Arm in the U.K. and clients like Huawei.Arm Ltd. said the board had appointed Ken Phua and Phil Tang as Arm China’s interim co-CEOs. But Arm China said on WeChat that Wu remained in charge. “In accordance with relevant laws and regulations, Allen Wu continues to serve as chairman and CEO,” the post read.It’s unclear how the public dispute would affect Arm’s relationships in the world’s No. 2 economy. The company has been ensnared in Washington’s campaign against Huawei because of its central role in semiconductor architecture. The U.S., home to many of the world’s chipmakers and a chunk of Arm’s operations, wants to block Huawei’s access to key chip technology after labeling the company a national security threat -- something the Chinese firm has consistently denied.The British company has said it will comply with the so-called U.S. Entity List restrictions. It continues to supply technology to Huawei’s HiSilicon, but it’s unclear if it can license future designs to the Chinese company.Read more: SoftBank’s Son Aims to Re-List Chipmaker ARM Within 5 Years(Updates with analyst comment from sixth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Huawei Technologies Co. owns the most patents on next-generation 5G technology, ensuring the Chinese company will get paid despite Trump administration efforts to erase it from the supply chain, according to a new study.The study by two research firms identified the inventions most closely connected to the 5G standards and found that six companies owned more than 80% -- Huawei, Samsung Electronics Co., LG Electronics Inc., Nokia Oyj, Ericsson AB and Qualcomm Inc., the only U.S.-based company in the group.That may be awkward for President Donald Trump, whose administration has launched a global effort to shut out Huawei, accusing the Chinese company of being a security threat. The administration has launched a number of salvos, including a ban on the sale of any silicon made with U.S. know-how, which is hurting the Chinese company’s aspirations to grow in cutting-edge fields.“Even if they hire some other company to build the 5G infrastructure, they still have to pay the Chinese company because of the intellectual contribution to develop the technology,” said Deepak Syal, director of GreyB Services Pte., a technology research firm that conducted the study with software firm Amplified AI Inc.Identifying how many patents a company holds -- and how key they are to the industry standards -- will help determine who profits most from the next generation of technology that promises to revolutionize developments such as autonomous cars, robotic surgery, and connected homes.The administration’s efforts against Huawei have borne fruit. Taiwan Semiconductor Manufacturing Co., the main chipmaker to Apple Inc. and Huawei, is planning a plant in Arizona to allay national security concerns and shift high-tech manufacturing to America. In the U.K., Prime Minister Boris Johnson is taking steps to exclude Huawei from its fifth-generation mobile networks by lining up potential replacements.Industry standards are critical to ensure devices work together and communicate with each other, even across national boundaries. Tech companies get together to establish those standards and pledge that any relevant patents will be licensed on “fair, reasonable and non-discriminatory” terms.There have been global patent wars for years over how to define those fair terms and who’s entitled to how much money in royalties. They were at the heart of since-settled fights, including Apple’s scorched-earth battle with Qualcomm, and Huawei’s dispute with Samsung. Huawei has also stopped paying Qualcomm what may amount to billions in royalties amid a dispute.The GreyB and Amplified study looked at about 6,400 inventions declared “essential” to 5G by their owners that had active patents somewhere in the world as of Dec. 31, 2019. By comparing the wording of the patent to the standard, the team of 25 researchers deemed 1,658 to be patents “core” to 5G.Courts and negotiators will ultimately have to decide, though, if the patents really are essential to the standard, whether they’re valid or not, and how much they are worth.Based on the study, all of the companies were found to be padding their patent submissions to ensure they would be able to enforce their rights later, and in an effort to increase the amount they’d be able to collect in royalties.“Companies over-declare pretty equally, so reducing everyone’s share by 75% or so yields the same pecking order,” said Jorge Contreras, a law professor at the University of Utah who’s written about determining what is “essential” to a standard.Huawei has collected more than $1.4 billion in licensing revenue and has paid some $6 billion to other companies, it said in a court filing in its patent dispute with Verizon Communications Inc.“Huawei creates plenty of its own intellectual property; we don’t need to steal anyone else’s,” Ben Howes, a Huawei spokesman, said in an opinion video. The company said it put together the video “in response to the U.S. government’s attempts to prevent Huawei from collaborating with academic institutions and innovating with our R&D and patents.”First-Phase StudyThe GreyB and Amplified study, considered the first phase as more patents are analyzed and the standards continue to evolve, showed the interconnectedness between companies around the world, Syal said. He said the purpose of the study was “to bring more clarity” to where the discussions or decisions are being made.“Rather than saying who has less contributions or who has less number of patents, let’s work toward increasing the intellectual contribution of our country or our company and then build the 5G infrastructure,” he said. “Otherwise, even by blocking, they are not helping in the end because they’re paying money in terms of royalties.”As part of the Trump administration’s efforts against Huawei, Secretary of State Michael Pompeo last week said European countries “need to get it out of their system. They need to use Western technologies.”While the administration has helped curtail Huawei’s growth outside China, it remains a player because of its global footprint and advanced technology.“From a pure technology standpoint, nationalism just doesn’t work anymore,” said Contreras.(Updates with U.K. plans and Taiwan Semiconductor plant proposal in sixth paragraph. An earlier version of this story corrected the amount Huawei pays in patent royalties.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Apple Inc. is preparing to announce a shift to its own main processors in Mac computers, replacing chips from Intel Corp., as early as this month at its annual developer conference, according to people familiar with the plans.The company is holding WWDC the week of June 22. Unveiling the initiative, codenamed Kalamata, at the event would give outside developers time to adjust before new Macs roll out in 2021, the people said. Since the hardware transition is still months away, the timing of the announcement could change, they added, while asking not to be identified discussing private plans.The new processors will be based on the same technology used in Apple-designed iPhone and iPad chips. However, future Macs will still run the macOS operating system rather than the iOS software on mobile devices from the company. Bloomberg News reported on Apple’s effort to move away from Intel earlier this year, and in 2018. Apple shares were up less than 1% Tuesday while Intel was down less than 1%.Apple is using technology licensed from Arm Ltd., part of Japanese tech conglomerate SoftBank Group Corp. This architecture is different from the underlying technology in Intel chips, so developers will need time to optimize their software for the new components. Cupertino, California-based Apple and Santa Clara-based Intel declined to comment.This will be the first time in the 36-year history of the Mac that Apple-designed processors will power these machines. It has changed chips only two other times. In the early 1990s, Apple switched from Motorola processors to PowerPC. At WWDC in 2005, Steve Jobs announced a move from PowerPC to Intel, and Apple rolled out those first Intel-based Macs in January 2006. Like it did then, the company plans to eventually transition the entire Mac lineup to its Arm-based processors, including the priciest desktop computers, the people said.Read more: Apple Aims to Sell Macs With Its Own Chips Starting in 2021Apple has about 10% of the PC market, so the change may not cut into Intel sales much. However, Macs are considered premium products. So if the company moves away from Intel for performance reasons it may prompt other PC makers to look at different options, too. Microsoft Corp., Samsung Electronics Co. and Lenovo Group Ltd. have already debuted laptops that run on Arm-based chips.Apple’s chip-development group, led by Johny Srouji, decided to make the switch after Intel’s annual chip performance gains slowed. Apple engineers worried that sticking to Intel’s road map would delay or derail some future Macs, according to people familiar with the effort.Inside Apple, tests of new Macs with the Arm-based chips have shown sizable improvements over Intel-powered versions, specifically in graphics performance and apps using artificial intelligence, the people said. Apple’s processors are also more power-efficient than Intel’s, which may mean thinner and lighter Mac laptops in the future.Apple’s move would be a highlight of this year’s WWDC, which will be held online due to the Covid-19 pandemic. Because of the fluid nature of the global health crisis and its impact on Apple’s product development, the timing of the chip announcement could change.At the conference, Apple is also readying updates to its other operating systems -- iOS, iPadOS, tvOS and watchOS -- with changes to augmented-reality capabilities, deeper integration with outside apps and services, and improved Apple Watch fitness features. A big priority is improving the performance of its mobile software after last year’s release, iOS 13, suffered from several issues.The company is working on at least three of its own Mac processors, known as systems-on-a-chip, with the first based on the A14 processor in the next iPhone. In addition to the main central processing unit, there will be a graphics processing unit and a Neural Engine for handling machine learning, a popular and powerful type of AI, the people said. In the past, Apple has made chips for specific Mac functions, such as security.Read more about Apple’s upcoming Mac chips here.Intel has faced more competition as its lead in production technology -- a key way to improve semiconductor performance -- has slipped. Taiwan Semiconductor Manufacturing Co. makes processors for many of Intel’s rivals using a more advanced process.TSMC will build the new Mac processors using a 5-nanometer production technique -- the same approach as for the next iPhones and iPad Pros. Intel rivals Qualcomm Inc. and Advanced Micro Devices Inc. also use TSMC to make their chips.The Apple chip project has been in the works for several years and is considered one of the company’s most secretive efforts. In 2018, Apple successfully developed a Mac chip based on the iPad Pro’s processor for internal testing, giving the company confidence it could announce such a shift this year.(Updates shares in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A South Korean court rejected prosecutors’ request to arrest Samsung Group’s billionaire heir Jay Y. Lee on allegations of price manipulation and violations of auditing rules, resolving a major uncertainty hanging over the world’s largest technology manufacturer.The Seoul Central District Court ruled against an arrest warrant for Lee and two other former Samsung executives Monday, saying that despite considerable evidence obtained through their investigation, they didn’t have a valid reason to detain Lee.”The relevance of the basic facts has been explained and it seems prosecutors have secured a considerable amount of evidence through their probes,” said Won Jung-sook, the judge in the case. “However, they had an insufficient explanation of the need to detain suspects.”Samsung Electronics Co. shares rose by as much as 2.9% in early Seoul trading on Tuesday.The ruling marks a victory for the co-vice chairman of the company, who’s embroiled in an increasingly contentious dispute with South Korean prosecutors over allegations of bribery and corruption. The request for an arrest warrant stemmed from a legal clash that dates back to 2015, centering on whether Lee and Samsung used illegal means to help him take control of a conglomerate founded by his grandfather.Prosecutors have been looking into alleged accounting fraud at Samsung Biologics Co. and a controversial 2015 merger of two Samsung affiliates, part of a broader probe into Lee’s succession plans. Investigators accuse Samsung of orchestrating a scheme to manipulate the value of Cheil Industries and Samsung C&T during the transaction, which they say helped the heir solidify his control of the conglomerate.”Given the seriousness of the case and a trove of evidence, the court’s decision to reject is a shame,” the prosecutors’ office said in a statement, as reported by Yonhap News. “Regardless of the result, we will do our best to continue the investigation according to law and principle going forward.”Why Samsung’s Billionaire Scion Is Facing Jail Again: QuickTakeThe failed arrest attempt is a relief for Samsung, which last week requested an outside review panel to assess the validity of a potential indictment of Lee by prosecutors, as allowed under Korean rules. If the panel is formed, it will make an assessment and give recommendations to prosecutors in coming months.Lee’s lawyers said in an emailed statement that they expect an impartial discussion of the case through the panel review. The Seoul Central Prosecutors Office said it will discuss Samsung’s request for the panel this Thursday, according to Yonhap.Tensions between South Korea’s largest conglomerate and prosecutors may intensify in coming weeks as both sides strive to win public opinion. Lee spent a year in prison from February 2017, when special prosecutors detained him over allegations that he bribed a confidante of former president Park Geun-hye.Samsung -- the world’s largest producer of memory chips, displays and smartphones -- has continued business as normal during the years-long probe and investors have been mostly unfazed. Its shares soared during 2019 and into the first months of 2020 before the coronavirus pandemic, despite prosecutorial scrutiny and investigations into more than a hundred group officials. But Lee’s plight remains a greater concern for Samsung because his potential absence would render it more difficult to make major decisions, such as on mergers and acquisitions or extraordinary investments.Samsung is fighting not just for Lee’s liberty, but for its corporate reputation. The allegations that it used gifts to buy government favor so one of the country’s richest men could take over his family’s company are so explosive they inflamed public opinion against major South Korean companies and shook the political balance of the nation.Samsung and Lee are determined to clear their names. The scion made a rare, personal apology in May, admitting missteps in the past and pledging not to hand leadership of the group to his children. Samsung has also been visibly active in helping South Korea’s battle against the coronavirus, dispatching its own doctors to help in the fight and helping to ramp up production of testing kits.Read more: Samsung Billionaire’s Fate at Risk Despite Role in Virus FightA day after prosecutors sought an arrest warrant last Thursday, Samsung strongly denied allegations of Lee’s involvement in stock price manipulations during the 2015 merger. The statement came after media reported that prosecutors concluded Samsung deliberately boosted stock prices of Cheil by purchasing treasury shares, while lowering Samsung C&T’s stock price through delaying announcement of an overseas construction deal. Samsung said there were no illegal attempts at manipulation.Fresh tensions between prosecutors and Samsung erupted in 2020 as the 51-year-old billionaire faced a new indictment over his involvement in succession plans, while a separate but related bribery trial involving the former administration remains in deadlock. Prosecutors have argued that one judge involved is biased and inclined to go lightly on Lee. The Supreme Court now needs to decide whether to keep the judge involved or replace him, which could mean the trial would drag into next year.Read more: Samsung Billionaire’s Fate at Risk Despite Role in Virus Fight(Updates with market reaction in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The Trump administration has fired multiple salvos against Huawei Technologies Co. since the start of a campaign to derail China’s technological ascendancy. The latest blow threatens to cripple the country’s tech champion.Huawei’s leafy campus in southern China has been engulfed in a state of emergency since the Commerce Department in May banned the sale of any silicon made with U.S. know-how -- striking at the heart of its semiconductor apparatus and aspirations in fields from artificial intelligence to mobile services. Its stockpiles of certain self-designed chips essential to telecom equipment will run out by early 2021, according to people familiar with the matter.Executives scurried between meetings in the days after the latest restrictions, according to one person who attended the discussions. But the company has so far failed to brainstorm a solution to the curbs, they added, asking not to be identified talking about private matters. While Huawei can buy off-the-shelf or commodity mobile chips from a third party like Samsung Electronics Co. or MediaTek Inc., it couldn’t possibly get enough and may have to make costly compromises on performance in basic products, they added.What Huawei’s brass fears is that Washington, after a year of Entity List sanctions that’ve failed to significantly curtail the company’s rapid growth, has finally figured out how to quash its ambitions. The latest curbs are the culmination of a concerted assault against China’s largest tech company that began years ago, when the White House tried to cut off the flow of American software and circuitry; lobbied allies from the U.K. to Australia to banish its network gear; even persuaded Canadian police to lock up the founder’s daughter. The latest measures however are a more surgical strike leveled at HiSilicon, the secretive division created 16 years ago to drive research into cutting-edge fields like AI inference chips. That unit surged in prominence precisely because it’s viewed as a savior in an era of American containment, and its silicon now matches rivals’ like Qualcomm Inc.’s and powers many of Huawei’s products: the Kirin for phones, Ascend for AI and Kunpeng for servers.Now that ambition is in doubt. Every chipmaker on the planet, from Taiwan Semiconductor Manufacturing Co. to China’s own Semiconductor Manufacturing International Corp., needs gear from American outfits like Applied Materials Inc. to fabricate chipsets. Should Washington get serious about throttling that spigot, Huawei won’t be able to get any of the advanced silicon it designs into the real world -- stymieing efforts to craft its own processors for mobile devices and radio frequency chips for 5G base stations, to name just two of the most vital in-house components. Dubbed the Foreign-Produced Direct Product Rule or DPR, Trump’s latest constraints have implications for China’s 5G rollout, for which Huawei is by far the dominant purveyor.The ban “focuses on HiSilicon-designed chips, which present the biggest threat to the U.S.,” Jefferies analyst Edison Lee wrote in late May. “The DPR could quash HiSilicon and then Huawei’s ability to make 5G network gears.”Read more: U.S.-China Fight Over Chip Kingpin Rattles Tech IndustryThe scene at Huawei’s Shenzhen nerve center invokes deja vu from a year ago, when Huawei billionaire Ren Zhengfei emerged from seclusion to declare his company’s survival in doubt. In the months following that proclamation, two things happened. U.S. companies, spooked by the prospect of losing billions, lobbied Washington for exceptions to the Entity List and suppliers from Intel Corp. to Micron Technology Inc. relocated assembly to increase foreign-produced components and continue supplying the Chinese company. Huawei employees -- spurred on by patriotism given perceptions the nation was under attack -- went to 24-hour days to design alternatives to American parts.The latest curbs could prove more effective because they remove Huawei’s chipmaker of choice from the equation. In theory, any chipmaker can petition the Commerce department for approval to ship Huawei-designed semiconductors, and opinion is divided on both sides of the Pacific as to how far the agency will allow shipments to proceed. But if it chooses to enforce the new curbs to the hilt, HiSilicon can no longer take its designs to TSMC or any foreign contract manufacturer. And local peers such as SMIC typically operate two generations behind TSMC.In fact, the latest curbs could severely disrupt production of some of the more critical and visible products in Huawei’s portfolio, including the Kirin brains and communications chips of future 5G phones, AI learning chips for its cloud services and servers and the most basic kinds of chips for networking. In February, Huawei touted how its next-generation antenna chips have been installed in “the industry’s highest-performance” 5G base stations. It may no longer able to ship those base stations after the chip inventory runs out.“HiSilicon won’t be able to continue its innovation any further until it’s able to find alternatives through self-development and collaboration with local ones, which will take years to mature,” said Charlie Dai, a principal analyst at Forrester Research. “We estimate that Huawei’s inventory of high-end chips (including baseband chips and CPUs for Huawei’s high-end smartphones) may last 12 to 18 months maximum.”Read about how Trump’s blacklisting of Huawei failed to halt its growth.Modern chip manufacturing at the highest levels simply cannot happen without American gear from the likes of Applied Materials, KLA Corp. and Lam Research Corp. Even in basic wafer fabrication, replacing TSMC is impossible because the Taiwanese foundry is the only company able to reliably make semiconductors using 7 nanometer or smaller nodes -- a must for high performance. Moving everything in-house -- essentially building an American-free plant -- is a pipe dream because it requires extreme ultraviolet lithography machines from ASML Holding NV -- a prerequisite for next-generation chipmaking. Yet ASML’s machines also use American technology from the likes of suppliers such as II-VI Inc. and Lumentum Holdings Inc, according to data compiled by Bloomberg. The best Chinese alternative could be Shanghai Micro Electronics Equipment, but its EUVs are again a few generations behind the Dutch firm’s.All that’s even before factoring in the uncertainty over Huawei’s access to design software developed by Cadence Design Systems Inc. and Synopsys Inc. The pair provide electronic design automation (EDA) tools that Hisilicon’s engineers rely on to draw up blueprints for next-generation processors. As Assistant Secretary of State for International Security and Nonproliferation Christopher Ford told reporters in late May: “If one wants to be working in the area of the very best chips, the chips that have the most computing power packed into the smallest space, it is necessary to use U.S. design tools right now because we have a commanding comparative advantage in that area.”“While there will be lots of opportunity to continue selling lesser quality chips to Huawei, this will be an additional challenge for the really good stuff,” he added.How Huawei Landed at the Center of Global Tech Tussle: QuickTakeIn the long run, the lack of consistent in-house chip supplies will disrupt China’s grand ambition of challenging the U.S. for global tech supremacy. More immediately, they threaten to curtail China’s crucial $500 billion 5G rollout -- a key piece of Beijing’s longer-term strategic vision.Huawei stands at the center of Beijing’s $1.4 trillion New Infrastructure initiative to seize the lead in 5G-based technology. Now it’s uncertain if it can even fulfill the 90-plus contracts it’s won so far to build networks for local operators like China Mobile Ltd. and other carriers around the world. That’s because HiSilicon’s chips are essential in products waiting to be shipped out. The uncertainty of not just fulfilling contracts -- but also around Huawei’s very ability to maintain clients’ networks once they’re up and running -- may also spook potential future customers.Internally, executives remain hopeful of finding a workaround, and are repeating the same mantra of a year ago -- doing without American technology isn’t impossible. “The good news is we still have time,” said one person involved in Huawei’s supply chain management. Chip architecture and supply “redesign takes time, but not something that can’t be done.”(Updates with table of Huawei’s chipmaking options after the tenth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Samsung Group’s billionaire scion, Jay Y. Lee, is embroiled in an increasingly contentious legal dispute with South Korean prosecutors over allegations of bribery and corruption. The clash, which dates back to 2015, centers on whether Lee and Samsung used illegal means to help him take control of the conglomerate founded by his grandfather. Lee arrived at the Seoul Central District Court Monday morning for a hearing to discuss whether he should be sent back to jail, where he already spent about a year before going free in February 2018. A decision is expected late Monday or on Tuesday.1\. Who is Jay Y. Lee?Lee, 51, is the vice chairman of Samsung Electronics Co. and heir apparent at South Korea’s most powerful conglomerate. After his grandfather founded the company, his father led the group until he suffered a heart attack in 2014. The elder Lee has reportedly been in a coma since then, while his son has become the de facto leader. But his succession has been complicated because he can’t simply take over his father’s assets. South Korea has one of the heaviest inheritance taxes in the world, 50% on estates of more than $2.5 million. The elder Lee’s net worth is about $18 billion, according to the Bloomberg Billionaires’ Index.2\. What is the legal dispute all about?South Korea’s special prosecutors first indicted Lee in early 2017 on charges of bribery and corruption, alleging that Samsung provided horses and other payments to a confidante of the former president to win support to help ease his succession. The case inflamed public opinion against the country’s powerful conglomerates, or chaebol, and triggered the impeachment of then-President Park Geun-hye. Lee was initially convicted and sentenced to five years in prison, but the sentence was suspended in 2018 and he was released from jail. Still, the case wasn’t over. The Supreme Court in August 2019 overturned the lower court’s decision to suspend the mogul’s sentence and ordered a retrial of the whole case. Those hearings have been delayed because prosecutors have argued that one judge involved is biased and inclined to go lightly on Lee. The Supreme Court now needs to decide whether to keep the judge involved or replace him, which could mean the trial would drag into next year.3\. Why do prosecutors want to jail Lee?Prosecutors are seeking the arrest warrant to send Lee back to jail because of a separate but related investigation. They argue that Lee should be imprisoned during the proceedings for the new allegations. However, their request for the warrant came just days after Lee requested a public assessment of the validity of his indictment, essentially trying to bypass professional prosecutors by appealing to a review committee that would be made up of outside experts. The attempt to jail Lee is seen by some experts as a reaction to his request.4\. What is the other case against Lee?Separate from the original bribery investigation but also related to succession, prosecutors are digging into the details of a controversial merger between two Samsung Group’s units in 2015 and alleged accounting fraud that may have helped Lee’s efforts to gain control. The probe kicked off after South Korea’s financial regulator concluded that Samsung Biologics Co. intentionally violated accounting rules and inflated its value ahead of an initial public offering. Prosecutors suspect the violation was to justify the merger ratio between the Biologics’ major owner Cheil Industries and Samsung C&T, which helped bolster the value of the heir’s stake in Cheil and his influence at Samsung Group. The Biologics unit has said it didn’t violate accounting standards.5\. What’s at stake for Samsung?Samsung has largely continued business as normal during the years-long probe, and investors have been mostly unfazed. Samsung Electronics’ shares soared during 2019 and into the first months of 2020 before the coronavirus pandemic, despite prosecutorial scrutiny and investigations into more than a hundred of group officials. The potential jailing of Lee is a greater concern for Samsung because his absence would render it more difficult to make major decisions, such as mergers and acquisitions or extraordinary investments. A request from Lee’s lawyers for a public assessment of the validity of his indictment could delay the resolution: If the panel is formed, it will make an assessment and give recommendations to prosecutors in coming months.6\. How does public opinion affect the situation?Samsung is fighting not just for Lee’s liberty, but for its corporate reputation. The allegations that it used gifts to buy government favor so one of the country’s richest men could take over his family’s company are so explosive they inflamed public opinion against major South Korean companies and shook the political balance of the nation. Samsung and Lee are determined to clear their names. The scion made a rare, personal apology in May, admitting missteps in the past and pledging not to hand leadership of the group to his children. Samsung has also been very active in helping South Korea’s battle against the coronavirus, dispatching its own doctors to help in the fight and helping to ramp up production of testing kits.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- HP Inc. will get to keep all the cash, factories and patents Quanta Storage Inc. was ordered to turn over to satisfy a $439 million antitrust judgment from 2019, a federal appeals court ruled.The Taiwanese disk drive maker was ordered to surrender almost all its assets before its appellate challenge had played out because it failed to post an $85 million bond to prevent early collection of the crippling award. The appellate court did agree to give it more time to comply.“Quanta risked bet-the-company litigation and lost, so the district court ordered it to hand over the company,” a three-judge panel of the Court of Appeals in New Orleans said Friday in a 21-page ruling.Quanta tried repeatedly in April to delay HP’s push to collect on the judgment. It claimed that coronavirus travel and business restrictions in Taiwan and China, where most of its executives and factories are, prevented it from posting the bond while complying with Taiwanese regulations on asset transfers by publicly traded companies. HP said Quanta was using the pandemic as a ploy to dissipate assets that could be used to satisfy the judgment.“It is not apparent from the record that the district court considered the amount of time it would take for Quanta to complete the asset transfer process required by Taiwanese law,” the panel said Friday.‘Cannot Go Unpunished’HP said it was pleased that the panel agreed with the trial judge and jury.“Quanta violated U.S. antitrust laws by conspiring to fix prices,” Alex Roberts, one of HP’s lawyers, said in an email. “That conduct cannot go unpunished. HP took them to task for those violations, and now we look forward to ensuring they comply promptly” with the turnover orders.Quanta said in an exchange filing in Taiwan on Sunday that the company will file a petition for the case to be reheard en banc. It will also discuss with its lawyers the procedure of the U.S. Supreme Court appeal in the case. The impact on the operations is yet to be evaluated, Quanta said.A Houston jury awarded HP $176 million in damages after a price-fixing trial in late 2019. Quanta was the only optical disk drive maker that didn’t settle out of court when HP sued more than a dozen manufacturers over a decade-long conspiracy to rig prices for components used to store and read media and data on DVDs, CDs and Blu-Ray discs. Industry giants including Toshiba Corp., Samsung Electronics, Hitachi-LG and Sony Electronics jointly controlled 90% of the market.Damages TripledAfter the jury tagged Quanta with all of HP’s losses from the racket, U.S. District Judge David Hittner in Houston compounded Quanta’s woes by tripling the damages, as allowed under U.S. antitrust law, subtracting settlement credits HP had already received.On appeal, Quanta argued that the damages were incorrectly calculated at trial because jurors included purchases by HP’s foreign subsidiaries, which Quanta claimed aren’t covered by U.S. antitrust protections. HP said its economic expert excluded purchases by the foreign units, and the appeals court agreed, upholding the money judgment.Quanta, which has surrendered some assets to a court custodian, had sought more time to comply with Taiwanese regulations before turning over the keys to its Asian factories. It had also said it needs to make sure the HP judgment is enforceable under local law before complying with an overseas court order that essentially liquidates the company.It urged the courts to respect international comity and require HP to confirm the judgment in Taiwanese courts -- or risk retaliation by foreign judges who might strip American companies of the protection of U.S. courts in overseas disputes. The appeals court rejected those arguments.The case is Hewlett-Packard Co. v. Quanta Storage Inc., 19-20799, U.S. Court of Appeals for the Fifth Circuit (New Orleans).(Updates with Quanta Storage comment in eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- While technology billionaires have been among the most visible champions of the fight against Covid-19, perhaps none has as much at stake as Jay Y. Lee., Samsung’s anointed heir.South Korea’s largest corporation and its de facto leader have been key players in one of Asia’s most successful coronavirus containment campaigns. Since March, Samsung has dispatched its own doctors to hard-hit zones, flown Korean engineers overseas via its private jet, doled out roughly $39 million worth of aid globally and played a central role in ramping up production of testing kits -- hailed by healthcare experts as a turning point in Korea’s battle against the disease.Samsung -- the world’s largest maker of memory chips, mobile devices and electronic displays -- and its fellow conglomerates helped flatten the virus curve. But for Lee, success comes at a time of particular scrutiny. The well-publicized effort burnished his image months before the denouement of a years-long scandal and trial into alleged influence-peddling and Lee’s succession plans. In the legal clash, which inflamed resentment against Korea’s most influential conglomerates, Lee stands accused of using thoroughbred horses and other gifts to buy government support for plans to cement his family’s control over the Samsung empire -- something both Samsung and he have denied.In a sign of how popular opinion will play into the case, Lee this week requested a public assessment of the validity of the indictment, invoking a measure allowing the formation of a civil panel to review cases. Then on Thursday, prosecutors, at risk of losing some authority, decided to seek an arrest warrant for the billionaire for alleged violations of capital market and audit laws, Yonhap News reported.“Samsung got on the prosecutors’ nerves. The move to request an outside review is something that’s undercutting prosecutors and could enrage them,” said Chung Sun-sup, CEO at corporate research firm Chaebul.com. “Lee might have thought that he could get support from people who distrust prosecutors.”Read more: Samsung Heir Vows an End to Family Rule After Succession ScandalLee could face a prison sentence of several years in the current trial. Regardless of Covid-19, the outcome could prove a watershed moment in the sensitive relationship between the country’s corporate chieftains and government. The hearings, which will likely wrap late this year, are regarded by many observers as a litmus test for whether Korea’s courts are truly independent of the powerful business interests that hold sway over the economy.The 51-year-old Samsung heir convened a rare press conference in May to apologize for his company’s mis-steps over succession. Swearing his children would never run the company, he pledged to give back to society and praised his fellow citizens’ dedication throughout the outbreak. “It gave me a chance to look back on our past and as a member of the business community, I feel a greater sense of responsibility,” Lee said. “I pledge to create a new Samsung that is level with the national dignity of South Korea.”The surprise announcement drew public support from both ruling and opposition parties as well as the chairperson of the Fair Trade Commission. But critics and academics pounced on Lee’s comments as bereft of substance. That’s because it came just before a deadline set by an internal Samsung oversight body for just such an apology. The independent compliance committee, established this year after a judge in the graft trial questioned Samsung’s measures to prevent legal violations such as bribery, assessed Lee’s apology as a “meaningful” step but wanted more details.“Samsung has never done as much in the past” to assuage critics of the conglomerates, said Kyungmook Lee, a business professor at Seoul National University. “As the largest chaebol in South Korea, the way they contributed to the nation during the Covid-19 crisis and apologized over past wrongdoings is helping soften public sentiment and improve the image of both the company and its heir.”That’s important because suspicion of the judiciary in Korea runs deep. Over the past decade, at least half a dozen high-profile industrial magnates have been sentenced to prison for corruption, only to have those jail terms mitigated or suspended by the courts -- including Lee’s father. Even President Moon Jae-in, who swept into power on promises to clean up endemic corporate malfeasance, grappled with public outrage after a judge in Lee’s first trial unexpectedly freed him after just a year in prison. In suspending Lee’s sentence, the judge concluded the billionaire couldn’t resist requests from a sitting president and that the greater responsibility lay with public officials. Park Geun-hye, who was impeached in 2017, has denied taking any money for herself.Paranoia about chaebols’ influence continues to dog the second phase of Lee’s hearings, which commenced late last year after the Supreme Court overturned the lower court’s decision to suspend the mogul’s sentence and ordered a retrial. Lee’s hearing has been delayed for months as prosecutors argue that one of the appeals court judges overseeing the current case is biased and inclined to go lightly on Lee. The justice in question has shown a flair for the dramatic by, among other things, lecturing the executive at length in October on how he can better run Samsung, advising him to take inspiration from Israeli businesses. The appeals court judge has so far kept out of the fray.“In South Korea, the public opinion often influences trials and sways verdicts,” said Heo Pil-seok, chief executive officer at Midas International Asset Management. “While Samsung’s facing several critical situations, it’s trying to make a plea for clemency to the public,” he said, referring to not just its Covid-19 efforts but also Lee’s apology.Read more: Samsung Warns of Profit Slide After Virus Slams Tech SphereSamsung and Lee’s approach to the sudden flare-up of the novel coronavirus was in many ways no different than his peers’. Noted philanthropists Bill Gates and Alibaba Group Holding Ltd. co-founder Jack Ma donated millions or offered technical assistance. Others like Amazon.com Inc.’s Jeff Bezos, faced with public criticism that their companies are placing workers in jeopardy, focused their efforts on protecting the workforce. And tech corporations joined manufacturers around the globe in trying to plug a shortfall in ventilators and masks.Samsung representatives emphasized that the company’s main goal was to combat the disease, save lives and protect employees, and dismissed any suggestion they were connected to the hearing. In addition to dispatching personnel, the company also converted a training facility near Daegu into a treatment center, helped expedite business entries into China, even handed out free smartphones to quarantined patients.“Samsung Electronics is joining the global fight against COVID-19 to safeguard the health and safety of our employees, customers, partners and local communities,” it said in a statement. “The smart factory program and other global relief initiatives by Samsung Electronics have nothing to do with the ongoing legal proceedings over the case of Vice Chairman Jay Y. Lee. Our efforts to curb the spread of the coronavirus have always been to help our employees and their families that have been impacted by this pandemic as we are all in this together.”Samsung plays an unusually crucial role in Korea’s economy and national ethos. Its transformation from economic minnow to technology export powerhouse owes much to its family-run conglomerates. Known as chaebol -- which means “wealth clique” -- these pillars of the nation’s “miracle economy” encompass household names like LG, Hyundai and SK. They’ve supported government initiatives for decades, spearheading a modernization effort that’s created world leaders in shipping, steel, and now technology and electronics.Largest of them all is Samsung. The 82-year-old conglomerate is both a symbol of the Asian country’s technological and diplomatic rise as well as a touchstone for what many think is wrong with the economy today -- the overwhelming dominance of a handful of dynasties who call the shots in everything from cars to phones.“Samsung’s striving to overhaul its image to win a positive trial ruling,” said Chae Yibai, a former opposition lawmaker and a long-time corporate governance activist, referring to the months-long virus campaign. “The entire process is like a play, with a judge taking on the role of director and the compliance committee acting as a sub-director. The leading man is Lee.”South Korea’s Chaebol, Engines of Growth and Scandal: QuickTakeIn the current drama, Lee’s star is on the rise. His approval ratings in independent surveys have climbed since the conglomerate, heeding the government’s call, swung into action in March. The top keywords in domestic internet searches covering Lee from January to April were “virus” or “management,” according to surveyor Global Bigdata Research, pushing out trial-related terms among the top 30.He’s even won over some of the smaller businesses that’ve traditionally played second fiddle to the chaebols. Local mask manufacturer E&W said its output increased about 50% after it adopted Samsung’s solutions in its facility setup and distribution. Samsung also dispatched about 10 experts to each of four test-kit makers to instruct their engineers on how to ramp up volumes while resolving bottlenecks through automation. “Keeping a sound ecosystem of SMEs is essential to Samsung as well as for the long-term benefits of all economic players,” said Junha Park, head of Samsung’s smart factory operation team.Lee’s approval rating in surveys conducted by the Global Bigdata have risen in 2020 since the outbreak. They fell to 9.77% in the two days after his public apology, down from an average of 16.37% over the 30 days prior. But negative views also plummeted to 20.6% from 44.2%, while those on the fence shot up to 72.8% from 39.4%. That latter point is key.“Credibility is very important,” said Daniel Yoo, head of global investment at Yuanta Securities Korea. “Clearly the corporate image, about Samsung and South Korea, has been improving.”Chaebol Backlash Loses Bite as Jailed Execs Walk Free: QuickTakeThe most immediate challenge for Samsung is empowering and keeping its de facto leader free during an era of heightened uncertainty. Regardless of the personal outcome of that trial, the longer-term perceptions of chaebols may hinge on Lee’s promise to corporatize Samsung. Some view his vision as the first step in finally reining in the chaebols, by breaking decades-old succession lines. Others suspect Samsung will find some other way to safeguard the Lee family’s control. That’s because it’s not up to Lee, but to the company’s shareholders and board, said Shin Se-don, an emeritus professor of economics at Sookmyung Women’s University.“The apology was unlike Samsung,” said Shin, who worked at Samsung’s research institute in the late 1980s. “After Lee’s announcement, ruling and opposition parties both suggested Lee could be legally excused. That’s different from what most people think.”(Updates with prosecutors seeking an arrest warrant in the third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Hong Kong’s finance industry is thriving from the great divorce between the U.S. and China. Billion-dollar initial public offerings are on the horizon again, as New York-listed mainland companies seek a second home. The city’s blue-chip index has even revised its weighting rules so tech stocks can feature more prominently. But is this enough to rouse a sleepy stock market? While Hong Kong is on par with Shanghai in terms of total market capitalization, turnover pales in comparison, and it's practically a stagnant pool compared with the very liquid Shenzhen bourse. While mega IPOs are exciting, they are one-time events. Once bankers earn their fees and wave goodbye, trading could languish again.South Korea may offer some insights. One year ago, Seoul was still in a deep bear market, plagued by steep conglomerate discounts and historically low turnover. Now, it’s teeming with life. Since global markets started turning around in late March, the benchmark Kospi index has soared more than 40%, making it one of the world’s best performers.All of a sudden, Koreans, who dabbled in cryptocurrencies and all sorts of structured products, are frantically buying cash equities. Retail investors have single-handedly supported the main stock index as foreigners and domestic institutional investors sold.CLSA Ltd. recently conducted a fascinating study explaining what’s become one of the Kospi’s largest ownership changes in history. Survey data show a few usual suspects: historically low deposit rates, cheap valuations, and blow-ups in popular alternative investments, such as mezzanine convertible bonds and equity-linked securities. A liquidity crisis and global market meltdown have tamed Koreans’ taste for exotic products.But the most interesting finding is that investors are swapping their real estate holdings for stocks. This comes as President Moon Jae-in’s administration has made it harder to invest in residential property, with a recent ban on mortgage lending for anything valued over 1.5 billion won ($1.2 million). In the past few years, a series of tightening measures has worked: A flattening of home prices, along with dwindling sales volumes, dented investor sentiment.Apartments in Seoul were once considered one of Korea's best performing long-term assets. They registered a capital gain of 80.9% over the past 15 years, with flats in the affluent Gangnam district returning more than 200%, data provided by CLSA show. Yet property restrictions look set to remain as long as Moon’s around — and he’s not required to leave office until 2022. So people with money to invest have to look elsewhere. Samsung Electronics Co., which gained 443% over the same period, is a good alternative. Retail investors have poured $7.2 billion into the company’s shares this year. Many of the catalysts that drove Koreans to stocks are present in Hong Kong, too. Interest rates are even lower and high-profile stocks are landing, including NetEase Inc., while Alibaba Group Holding Ltd. completed its secondary listing last year. Meanwhile, local investors can no longer count on HSBC Holdings Plc for reliable dividend payouts, forcing them to look at tech companies instead. It’s no coincidence that the retail portion of NetEase’s Hong Kong listing was met with brisk demand on the first day, enabling the company to increase its allotment to local investors. The missing piece, however, is real estate. As soon as Hong Kong loosened its social distancing rules in May, secondary home-sales prices ticked up, along with transaction volume. The Land Registry recorded 6,885 property deals in May, a 12-month high. The faith that this sector can outperform stocks hasn’t broken yet. For an equity market to shine, local retail participation is essential. Overseas institutional investors, the biggest contributors to Hong Kong’s turnover, come and go. Those from the mainland, now active players through the stock connect, are equally fickle, given they’re so used to liquidity-driven markets back home. So unless Hong Kong moms and pops can learn from the Koreans — trading away their flats in Gangnam for a slice of Samsung — the Hang Seng will remain asleep. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The U.K. is in talks with a rival to Huawei Technologies Co. as Boris Johnson’s officials revise the British government’s stance toward China in the wake of the global coronavirus pandemic.Officials spoke with Japanese technology company NEC Corp. in May as part of efforts to diversify the range of equipment providers for the U.K.’s fifth-generation mobile networks, a person familiar with the matter said. The government is also looking at Samsung Electronics Co Ltd as a possible option to provide crucial 5G infrastructure, the person said. The aim is to move the country away from reliance on Huawei, in the face of growing political opposition within Britain’s ruling Conservative Party and wariness toward China among the U.K.’s international allies.Johnson gave the Shenzhen-based telecommunications giant the green light to supply parts of the 5G networks in January, a move that angered U.S. President Donald Trump who had called for the company to be banned.But the prime minister and his close team have become far more skeptical of China since the Covid 19 crisis hit the U.K., as have others in his party. Tories, including officials in the administration, have been critical of Beijing over China’s handling of the initial stages of the coronavirus outbreak.Tory RevoltGovernment officials now believe it will be impossible to stop a revolt from Tory members of Parliament blocking Huawei’s involvement in 5G mobile networks when the government brings forward legislation later this year, people familiar with the matter said.The political reality of opposition to Huawei has made it urgent for Johnson’s ministers to push ahead with finding alternative providers so the country does not need to rely on Huawei for 5G systems in the longer term, the people said. Huawei equipment currently makes up about a third of Britain’s 4G mobile broadband antennas, and rules introduced in January meant it would be able to supply up to 35% of those for 5G, as well as full fiber broadband.Officials have been ordered to draw up plans to phase out the Chinese company’s involvement in U.K. 5G networks by 2023. But no single company can currently step in to replace Huawei entirely, which is why the government is looking to a range of companies to diversify the supply chain and end reliance on a handful of mobile network providers.The discussions between the government and NEC focused on bringing the company into the U.K.’s 5G market, at first potentially through a trial program to develop technical capabilities, called “5G Create.” A person familiar with the matter said the move showed the government is serious about diversifying the market and moving away from reliance on Huawei.More TalksSamsung, which currently has no 5G equipment in U.K. moble networks, will be invited in for talks with the government soon as part of the wider bid to diversify the network supply chain, the person said.The Department for Digital, Culture, Media and Sport is leading the work as part of a 200 million pound ($252 million) 5G trials program to develop the U.K.’s mobile network infrastructure. The company declined to comment.“NEC are currently involved in various 5G activities in different parts of the world but we are not able to comment on this specific project,” a spokesperson for NEC said in an email.U.S. officials have urged allies to ban Huawei from 5G networks on security grounds, arguing that its equipment could be used by Chinese spies, something the company has always denied.U.K. digital security officials are reviewing the role of Huawei in light of the U.S. government’s recent additional sanctions on the company, which could have a significant impact on British networks. “The security and resilience of our networks is of paramount importance,” a government spokesperson said.Boris Johnson Offers 3 Million Hong Kong Residents Haven in U.K.At the same time, Johnson’s team is responding to a broader shift in the West’s stance toward China.Political tensions have grown in the wake of the covid-19 pandemic. China’s plan to introduce a new security law in Hong Kong, a former British colony, has also provoked dismay in London.Johnson has called on Beijing to back down but warned he’ll give as many as 3 million people the chance to seek refuge in the U.K. if the new security law is imposed on Hong Kong.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- When Justin Sun met Warren Buffett for dinner in January, he wasn’t seeking advice on stocks. The crypto mogul had spent a record $4.6 million at a charity auction for the opportunity to lecture the world’s most famous investor on the benefits of Bitcoin.It was exactly the sort of behavior that Sun’s known for -- abrasive, ostentatious and, ultimately, impossible to ignore. Like the $200 billion crypto industry itself, he is young and hungry for the respect of traditional financiers like Buffett, who deems Bitcoin basically worthless.Still shy of his 30th birthday, Sun founded one of the largest blockchain platforms, Tron, in 2017 and turned it into a virtual Las Vegas with gambling apps. He’s rubbed shoulders with Apple Inc. and Alibaba Group Holding Ltd. founders, hired celebrity endorsers like the late Kobe Bryant and drawn accusations of plagiarism, which he has denied, more than once. What he says and does can move crypto prices, and his aggressive acquisitions have earned him both admiration and notoriety in the blockchain community on his way to consolidating power.“I’m a true believer of blockchain. It’s once in a lifetime,” he said in a rare in-depth interview from a luxury office suite overlooking Hong Kong’s Victoria Harbour. “It’s only people who don’t understand it who question me.”Making his personal fortune by embracing Bitcoin as early as 2012, and now by his own account worth somewhere in the hundreds of millions of dollars, Sun is part of a second wave of crypto entrepreneurs who envision putting more than just digital money and payments on a decentralized platform. Last week, Sun and his team touted an upcoming major update to Tron, which will include more privacy features and enterprise applications.Newer blockchains like Tron let developers build so-called decentralized apps, or dapps, on their platforms. Ethereum is the foremost among them, with its co-founder Vitalik Buterin offering a simple analogy: if Bitcoin is a pocket calculator, platforms with dapps are akin to smartphones. But unlike Android or iPhone apps, dapps are decentralized in the sense that they aren’t run on one server or by any single entity.Sun’s Tron has 342 active dapps and more than 230,000 users, both roughly half Ethereum’s totals, according to data tracker Dapp Review. It’s been accused by researchers like Digital Asset Research of copying Ethereum’s code without attribution, and by Buterin himself of stealing words from other projects’ whitepapers. Tron and Sun have denied both accusations.The bulk of business done on Tron today revolves around the largely unregulated field of crypto gambling, with a January Dapp Review report describing it as “Las Vegas on the blockchain.” In the first quarter, casino dapps comprised 92% of Tron’s $411 million total transaction volume, according to the Binance-owned researcher. Sun said the Dapp Review estimate was inaccurate and over-stated the gambling activity on the Tron blockchain. In fact, such transactions are only a fraction of the total, he said.Sun “identified niche customer bases, namely gamers and gamblers, that have great reasons to use blockchain, drive a lot of transactions, and are crypto savvy,” said Matthew Graham, chief executive officer of Sino Global Capital, a Beijing-based blockchain consultancy.Since its inception, Tron has been augmented with the acquisitions of live-streaming service DLive, briefly the exclusive online home of YouTube star PewDiePie, and file-sharing service BitTorrent Inc. Through a partnership with Samsung Electronics Co., Tron dapps can be downloaded via one of the world’s most widely distributed mobile app stores.Sun has proven himself an able marketer, raising $800,000 in under five minutes through a public token sale for his lending platform, called Just. He also commands an audience of two million Twitter followers.But he’s also been challenged on basic information. While Sun said he often covers the $5 million quarterly operational costs for Tron, Ryan Dennis, a spokesman for the nonprofit Tron Foundation that coordinates the blockchain platform’s operations, denied that figure -- saying they won’t be able to get accurate cost numbers “due to the coronavirus pandemic changing everything on a day-to-day basis.”As a sociology student in the U.S., Sun founded an online magazine about current affairs -- though it closed after he was accused of plagiarism by another author. Sun has denied the accusation, saying he merely imitated the author’s style.He then made the switch to tech.After an unsuccessful attempt to set up China operations for American crypto company Ripple in 2014, Sun went back to the drawing board with $5 million of venture-capital money from backers like IDG Capital and ChinaEquity Group. He tried almost every hot idea in China’s internet space, finally finding success in Peiwo, which let users connect with random strangers via voice messages. That app would later be slammed by China’s top state news agency for spreading vulgar and pornographic content.On social media, he billed himself as Alibaba co-founder Jack Ma’s first millennial protégé, since he was picked up in 2015 by the billionaire’s MBA program. When fellow tech entrepreneurs ran into cash crunches, he was often quick to say he would lend them money. He said he had a 100 million-yuan ($14 million) charity budget for 2019, part of which was distributed in cash giveaway campaigns via his Weibo account.Sun’s dinner with Buffett is still the banner image on his Twitter profile. The meeting had been scheduled for last July, but three days before the planned date Sun rescheduled, citing a bout of kidney stones. Later that week, he took a selfie and then live-streamed himself with San Francisco’s Bay Bridge in the background to rebut a news report that he was under Chinese border control. He then apologized on Weibo to the Chinese regulators and public for his “excessive self-promotion.” He was banned from the microblogging site at the end of 2019. (Sun now has a team, including a photographer, to manage his Twitter and Instagram accounts.)Read more: Buffett Lunch Mystery Deepens as His Date Apologizes to SocietyWhen Sun finally sat down with Buffett, his entreaties crashed against a wall of skepticism.“It’s not just Buffett, the Chinese government also has the same attitude,” Sun said.Sun shut down his Beijing offices last year, after China launched a renewed crackdown on a crypto industry it views with suspicion. He said he hasn’t returned to mainland China since the end of 2018, though he’s not prohibited from doing so.During the Covid-19 pandemic, the jet-setting entrepreneur has been stuck in Hong Kong. But he has continued to stumble into controversy. In February, Sun bought the social network Steemit, billed as “owned and operated by its users,” along with 30% voting control over its platform. Fearing that gave Sun too much power, part of the Steemit community temporarily froze his stake and then split the blockchain into a whole new branch.“His playbook might be the optimal strategy during the early barbaric growth period of the crypto industry,” said Wayne Zhao, analyst and managing partner of researcher TokenInsight. “You are nothing without people’s attention, no matter if it’s good or bad.”(Updates with Sun’s comment in the eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Buried in a set of little-known data are early signs that the hardware side of the technology sector may be rebounding from the pandemic-driven plunge.Investors generally need to wait until a few weeks after a quarter closes to get a sense of how well (or badly) business has been, or hope that a company will provide an update when the situation changes. Except in Taiwan. A decades-old regulation requires companies there to report sales every month. This information isn’t useful only to investors in locally traded stocks. What’s listed is a broad range of companies that make chips, components, half-assembled modules and final products used in almost every electronics device in the world. The numbers can also provide a snapshot of output in China, where most Taiwanese technology manufacturers have the bulk of production.As early as January, it became obvious that the coronavirus would be a nightmare for tech companies. We now know that Apple Inc. posted a 7.2% drop in March-quarter sales of iPhones and iPads, while its major supplier, Foxconn Technology Group, suffered its biggest dive in revenue for seven years.More interesting is to see what’s been going on since. A look at April sales data from Taiwan enabled me to crunch numbers. What we find is a bounce in revenue that gives some hope for the global sector.Taiwan Semiconductor Manufacturing Co. and Foxconn’s Hon Hai Precision Industry Co. are the most famous names in this data set, because they’re the biggest in their category and have a VIP client list that includes Apple, Qualcomm Inc., Huawei Technologies Co. and Sony Corp. Yet hundreds of others, such as Pegatron Corp., Quanta Computer Inc. and Largan Precision Co., collectively supply most of the industry.By aggregating the data month by month, comparing to a year earlier to smooth out seasonality, and looking at the sub-sectors within tech — defined by the Taiwan Stock Exchange — such as components suppliers, chipmakers, or computer assemblers, we can get an understanding of what was happening just a few weeks ago.Computers and peripherals, which include major PC and server makers Quanta and Compal Electronics Inc., showed the largest rebound, from an 11.9% drop in the January to March period to a 7.9% rise in April. Electronics parts and components, such as circuit-board supplier Compeq Manufacturing Co., turned a mild decline into solid growth, from a 3.1% decline into a 9.1% increase. Other electronics, including Hon Hai, which not only assembles iPhones but servers and networking equipment, went from an 11.8% fall to flat. Chips, headlined by TSMC, remained incredibly strong. Optoelectronics, which is largely displays and camera modules, shows a prolonged decline.One of the key takeaways is the relative strength in corporate-focused hardware, and possible continued weakness in gadgets. Foxconn pointed to this earlier in May, when it told investors that its consumer-devices division, which encompasses iPhones, would fall at least 15%, while enterprise products would climb 10%.There are two important caveats to the data.The first is that they track just Taipei-listed companies, and not some big names like Huawei and Samsung Electronics Co., which also manufacture their own hardware. However, it’s a like-for-like comparison — those companies aren’t included in last year’s data, either — and the broad reach of Taiwan’s tech sector means that even Huawei and Samsung are likely part of its supply chain.A more important note is that this is just for one month. Some of that April uptick is simply catch-up production for time lost at the height of the pandemic. Yet clients wouldn’t place orders if they didn’t feel that there’s end-demand somewhere. Autos and textiles are cutting production and shuttering factories in the knowledge that such a pickup in sales isn’t likely. With global turmoil making companies reticent to give predictions, investors wait in the dark for an update or a quarterly conference call. Even if we don’t know whether this is a true rebound, or merely a dead-cat bounce, at least there’s more timely data available to examine.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.