According to corporate records, a seasoned software executive from Silicon Valley took the lead last year at a startup in his home China. The business disclosed to prospective investors that it would market software for designing microchips, which is mostly distributed by a small number of major Western corporations.

The highly sought-after and specialised software tool, referred to by its initials OPC, is essential to the design of advanced chips and is employed in the creation of numerous microchips.

Currently dividing the US and China in their scientific battle for military and economic dominance is the production of sophisticated chips, one of the most controversial technological disputes. China’s access to key semiconductor design tools is being restricted by Washington.

The startup, called SEIDA, demonstrates why the containment effort is so difficult.

According to persons acquainted with his work and public records reviewed by Reuters, Liguo “Recoo” Zhang had lived in the United States long enough to get permanent status and buy a home in Silicon Valley prior to taking on the role of chief executive of SEIDA.

He worked at Siemens EDA, the American branch of the German industrial behemoth Siemens AG, which controls the Chinese market for the very technology SEIDA promised investors it would sell there. Zhang was joined at SEIDA by a minimum of three additional Chinese-born colleagues from Siemens EDA.

SEIDA referred to OPC as “indispensable technology” in a 2022 investor presentation and stated that the tool would be available by early 2024.

According to SEIDA, a Chinese version of the product would “break through the foreign monopoly,” assisting China in becoming a chip technology independent nation. One presentation stated that SEIDA’s ultimate objective was to “become the global leader in OPC.”

The pitch drew in influential Chinese financiers.

One supporter is the investment division of Semiconductor Manufacturing International Corp., or SMIC, according to recent corporate papers that Reuters examined. The Shanghai-based, state-backed business leads China’s semiconductor manufacturing industry. Washington prohibits American companies from supplying technology to SMIC without a special licence because it believes that the company’s purported military cooperation with China poses a threat to U.S. national security.

There were no comments form SMIC on either on the investment or the US restrictions.

Zhang was not available for an interview, a receptionist at SEIDA’s headquarters in Hangzhou, eastern China, said Reuters during a recent visit. The chief operating officer of SEIDA, Peilun “Allen” Chang, stated in an email following the visit that the prospectus that Reuters had read is “obsolete.”

According to him, the company’s goals have changed, and its main supporters are “private institutions and individuals.” Chang declined to disclose the amount of money SEIDA has raised or the items it currently hopes to sell, stating that the company’s business plan is “under continuous evaluation.”

In a statement, Siemens EDA acknowledged Zhang’s and three other coworkers’ departures. Although it declined to provide any details, the business stated that it views SEIDA as “a potential competitor”.

Reuters was unable to ascertain whether SEIDA had made headway in offering optical proximity correction, or OPC, for sale. The software, which is a component of a larger suite of technologies known as electronic design automation, or EDA, is frequently used for the creation of several microchips. Artificial intelligence, quantum computing, and hypersonic flight are just a few of the important new technologies that could be advanced with the aid of these methods in chip design.

The U.S. government has stepped its attempts to restrict China’s access to EDA tools, which are mostly produced and sold by American companies, since the debut of SEIDA in October 2021.

Washington seeks to stop China from acquiring technology that would enable it to match microchip advancements made by the US and its allies, including Taiwan, the self-governing island that China claims is its own country and the world’s top chip producer, through export limits and other measures.

Chang stated in emails with Reuters that one of the first reasons Zhang and his colleagues left Siemens EDA for SEIDA was because of US constraints. Their commercial potential at Siemens EDA were restricted by the restrictions, he noted, “diminishing scope for career advancement and involvement in key projects.”

Chang stated that SEIDA follows Chinese and American regulations.

No one has accused SEIDA or its management of any misconduct. Furthermore, Reuters does not have any proof that SEIDA is utilising any technology or expertise that Siemens EDA or other parties would view as proprietary. Chang stated that SEIDA has “a stringent vetting process…ensuring no infringement upon the intellectual property of others.”

According to industry insiders and those acquainted with Beijing’s efforts to outmanoeuvre American restrictions on technology transfer, SEIDA’s introduction is consistent with a trend in which Chinese businesses are leveraging foreign technology. The technology in question are so sophisticated that even if the SEIDA executives hadn’t pilfered from their former business, they could only provide comparable items with years of expertise working with current suppliers.

“Developing OPC from scratch without access to any existing intellectual property would be challenging in this timeframe, to say the least,” said Jan-Peter Kleinhans, director of technology and geopolitics at Stiftung Neue Verantwortung, a Berlin think tank where he has researched China’s market for EDA tools.

The hitherto unreported tale of SEIDA highlights the difficulties the West encounters in impeding China’s advancement of sophisticated microprocessor technology. In spite of Washington’s attempts to impede China’s adoption of semiconductor technology, Beijing is racing to promote internal growth, entice skilled foreign workers to return home, and catch up with the rest of the world in this area.

In a statement, an official from China’s foreign ministry claimed that the US “abuses export control measures” and that it “applies illegal unilateral sanctions and long-arm jurisdiction to Chinese companies.”

The representative went on to say that China “complies with internationally accepted rules” and has passed legislation to protect intellectual property. “Technological advancements in China are not the result of theft, nor of robbery, but are the result of Chinese people’s ingenuity and hard work,” the statement went on.

One of the biggest long-term risks to the US economy and security, according to US officials, is China’s efforts to acquire Western technology. They have voiced specific concerns about China’s capacity to equip its rapidly expanding military with cutting-edge chips and the potent processors they enable.

During a congressional hearing in Washington this month, Matthew Axelrod, the deputy U.S. commerce secretary for export enforcement, stated, “At no point have export controls been more central to our national security.”

According to a spokesman for the Chinese foreign ministry, these worries are a reflection of “a Cold War and hegemonic mentality.”

While export rules may delay Beijing’s progress, industry experts say, they are unlikely to stunt China’s development of chip technology. “To stop the Chinese, the U.S. is lying across the tracks, but it’s just going to become a speed bump,” stated Michael Bruck, a former general manager of Intel Corp.’s China operations. “It will push China to be more independent.”

The pursuit of increasingly advanced processors has become a key component of China’s strategic agenda.

Beijing declared last year that the government will invest $143 billion to support the country’s chip industry, following the announcement of further curbs by Washington.

In a different initiative called “Thousand Talents,” the government provides jobs, housing, and other benefits to Chinese professionals returning from tech and science positions overseas.

Washington has criticised the programme, which has been in place for more than ten years, since some see it as a means for China to gain intellectual property illegally from other countries.

Last May, the U.S. A software engineer in California was taken into custody by the Federal Bureau of Investigation on allegations of trade secrets. Investigators claimed that the engineer, Liming Li, had taken millions of files from two unnamed U.S. employers in an FBI affidavit pertaining to the case.

As per the affidavit, one of the employers discovered on Li’s laptop a folder containing papers pertaining to “Thousand Talents.” The FBI claimed that data pertaining to “national security, nuclear nonproliferation, and anti-terrorism” were among the stolen firm files.

Li entered a not guilty plea. Daniel Olmos, his lawyer, declined to comment.

This year, Reuters has covered the competition between the West and China for supremacy in a number of industries, including digital communications encryption, underwater cables, and killer robots. Who wins in these technologies and others that will become available once faster processors are built to allow them will be determined in part by the competition for supremacy in chipmaking.

Beijing has called for a stronger domestic semiconductor industry, and numerous Chinese tech businesses have been formed in response. One such startup is SEIDA, which is run by former Siemens EDA employees.

Tracking the proliferation can be challenging.

Access to company registrations is restricted by recent modifications to Chinese regulations. China’s involvement in the establishment of SEIDA and any state incentives given to Zhang, the CEO, or his colleagues to quit Siemens EDA and work there were not disclosed to Reuters.

Two organisations, Datenna of the Netherlands and Global Data Risk of New York, which gather and examine Chinese company information, assisted reporters in reviewing a portion of SEIDA’s corporate filings.

The papers, which date back to October 2021, allowed Reuters to put together some of SEIDA’s past with the help of interviews and publicly available information.

According to the documents, partnerships led by Zhang and a few of his former Siemens EDA coworkers now own the bulk of SEIDA. When and by whom those partnerships were formed are unclear. A few weeks after the startup’s founding and prior to Zhang departing Siemens EDA, records indicate that the partnerships made an investment in SEIDA in November 2021.

Zhang’s journey to SEIDA started with Mentor Graphics Corp., the firm that Siemens EDA formerly owned and which Siemens, headquartered in Munich, purchased in 2017.

Mentor was one of the first three American companies to sell the majority of software globally. Founded in Oregon in 1981, Mentor was a pioneer in the field of electronic data analysis. Mentor claimed $1.2 billion in yearly revenues at the time of its acquisition.

According to SEIDA’s 2022 presentation to investors, Zhang held a master’s degree in microelectronics from a Shanghai institution and spent over ten years working at Siemens EDA and Mentor. He held the position of Siemens EDA product director before to joining the startup.

Based on Chinese and American records, Zhang’s current age is 44 years old. In July 2022, he was appointed chief executive of SEIDA, according per the filings with SEIDA.

At least three other Chinese-born coworkers who joined Zhang were Siemens EDA veteran employees, according to information seen by Reuters. Academic records indicate that two of them, Zhitang “Tim” Yu and Yun Fei “Jack” Deng, obtained doctorates from American universities. Yu was born in China, but U.S. records show that he is also an American citizen. Deng, who was born in China as well, became a lawful permanent resident of the US.

U.S. citizens and permanent residents may be penalised under the new export limits if they assist Chinese companies in developing or producing sophisticated semiconductors without obtaining the necessary licences. Depending on the infraction, these consequences could take the form of fines, jail time, or tickets.

Email correspondence from Chang, the COO, stated: “We continuously monitor both emerging and existing regulations to ensure our operations align with applicable legal standards.”

Last year, SEIDA executives set high goals for themselves when looking for investors. By the end of the previous year, the company might have been valued as high as 700 million yuan, or $99 million, according to the 2022 presentation. SEIDA aimed to sell shares to the public by 2026, they stated.

Their efforts garnered the support of at least one influential person.

Records obtained by Datenna and PitchBook Data Inc., a corporate research firm based in the United States, show that SEIDA got hidden cash in June 2023 from China Fortune-Tech Capital Co., or CFTC, an investment vehicle owned by chipmaker SMIC. CFTC did not reply to inquiries for information.

SEIDA is still able to attract investors. Five other investors, including four Chinese venture capital firms, bought shares in the company this month, according to its corporate papers.

Chang declined to comment on whether SEIDA’s business plan is now being reviewed or if it will stop marketing OPC as early as it did. “Due to the confidential nature of our business strategies, specific details of our current and future plans cannot be disclosed,” stated Chang.

The welcome desk at SEIDA headquarters had the same branding as the initial fundraising pitch when Reuters visited. The slideshow states that SEIDA stands for “Semiconductor Intelligent Design Automation.” In the branding and on SEIDA’s website, the tagline is translated as “enable chip success.”

(Adapted from Reuters.com)

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