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Chapter 2277 Waves

On Monday, April 10, 1984, at 8:00 a.m., the NASDAQ Stock Exchange in New York had just opened.

Lemon Technology (stock code LEM) shares remained stable at $46, with a market capitalization firmly above $210 billion.

At 9:30 a.m., Reuters issued a breaking news report: "Exclusive: Lemon Technology plans to invest in building an advanced wafer fab in Shanghai, China, with an estimated investment of over $500 million."

The news exploded on Wall Street like a bomb.

At 9:45 a.m., The Wall Street Journal's online edition followed up: "According to sources, Ningxin Semiconductor, a subsidiary of Lemon Technology, has signed a memorandum of understanding with Shanghai to build its largest wafer fab in Asia in Pudong New Area, using 3-micron process technology licensed from IBM."

At 10:00 AM sharp, CNBC broadcast an emergency news report: "Breaking News! Lemon Technology is transferring core technology to China, raising national security concerns over its Shanghai wafer fab project."

At 10:10, LEM's stock price began to fall.

$46... $45... $44...

By the morning close, it had fallen to $41, a single-day drop of more than 10%.

Its market value evaporated by more than $20 billion.

The news reached Singapore in the evening.

Chen Wenhao, deputy director of the Economic Development Bureau, was having dinner at home when he received an urgent phone call, and he almost dropped his fork.

"What? Shanghai? Impossible! Didn't we already sign a letter of intent with Lemon Technology?"

The person on the other end of the phone was the director of the US office: "Deputy Director, the news has been confirmed. Ningxin Semiconductor is simultaneously advancing two projects in Shanghai and Singapore, but the Shanghai project is larger in scale, with an investment twice that of ours."

"Contact Chen Weiming immediately! I need to get to the bottom of this!"

Half an hour later, the overseas call was connected.

"Mr. Chen, what's going on? Aren't the conditions we offered from Singapore good enough?" Chen Wenhao asked, suppressing his anger.

Chen Weiming explained over the phone: "Director Chen, please don't worry. The Singapore project is proceeding as planned, and the Shanghai project is a new addition. The Chinese market has huge potential, and we need to plan ahead."

"But didn't you say before that Singapore was the only location in Asia?"

"Plans can't keep up with changes. The conditions offered by Shanghai... are hard to refuse."

"What conditions?"

“Land will be free for thirty years, corporate income tax will be waived for ten years, and water and electricity prices will be locked for twenty years. The government has also promised to build employee housing areas and power plants.” Chen Weiming said truthfully, “Moreover, China’s labor costs are only one-third of Singapore’s.”

Chen Wenhao remained silent.

Singapore cannot provide these conditions.

"But what about the risks? China has only just opened up, and policy stability is uncertain..."

"So we're keeping the Singapore project in the same place," Chen Weiming said. "We don't put all our eggs in one basket."

After hanging up the phone, Chen Wenhao told his assistant, "Draft a letter of protest immediately and send it to the U.S. Department of Commerce through diplomatic channels. Say that Lemon Technology has violated business integrity and harmed Singapore's interests."

Taipei, Ministry of Economic Affairs conference room.

Minister Li Guoding slammed the newspaper on the table: "What exactly is Suning trying to do? Why not come to Taiwan with such good conditions and instead build a factory on the mainland? Doesn't they know how much better Taiwan's technical talent is than that of the mainland?"

The Director of the Industrial Development Bureau said cautiously, "Minister, we contacted Lemon through an intermediary before, but they said that the political risks in Taiwan are too great and the US parent company has concerns."

"What concerns? Taiwan is an ally of the United States!"

"But the Chinese mainland market is much larger. And... there are rumors that Suning himself has a special affection for the mainland."

“That would be even more dangerous!” Li Guoding stood up. “Immediately contact our think tanks in the United States and have them write articles emphasizing the risks of technology transfer to the mainland. Also, notify TSMC to accelerate the construction of our own wafer fabs; we can’t fall too far behind.”

"It seems that Morris Chang of TSMC was poached by Lemon Semiconductor."

"What?!" Li Guoding's face turned ashen. "Poaching our people to build factories on the mainland and compete with us? This is simply..."

He was so angry he couldn't speak.

Tokyo, Ministry of International Trade and Industry meeting room.

Several senior officials are reviewing a briefing.

“Ningxin Semiconductor has built a factory in Shanghai using IBM technology,” a section chief analyzed. “This means that China will have the capability to manufacture wafers using a 3-micron process for the first time. Although it is one generation behind us, it can already produce most civilian chips.”

"What impact will this have on us?" the vice minister asked.

"In the short term, it will take away some of our low-end chip manufacturing orders. In the long term, if China masters the technology, coupled with its low-cost advantage, it may become a strong competitor to us."

"Aren't NEC and Toshiba also collaborating with Lemon?"

“That was a collaboration with an American factory. Japanese companies were completely excluded from this Shanghai project.”

“Contact the U.S. Department of Commerce immediately to express our concerns. Also, notify domestic companies to reassess the extent of their technological cooperation with China.”

Kuala Lumpur, Investment Development Authority (IDA).

The bureau chief, Datuk Ahmad, was furious: "We offered such good terms—land, taxes, labor… and they chose Shanghai? Why?"

The subordinate whispered, "Director, China's labor costs are only 60% of ours, and land is practically free. Moreover... the Chinese market has a billion people."

"But we are more stable! Safer! And have more comprehensive laws!"

“These things... may not be the primary consideration when it comes to cost.”

Ahmad slumped into a chair: "Notify the US embassy that we are protesting. Also, all future investments from China will be subject to strict scrutiny."

……

The news reached Washington at seven in the morning.

Commerce Under Secretary Smith was eating breakfast when his secretary came in with urgent documents.

"Minister, something's happened. Lemon Technology is going to build a wafer fab in Shanghai, using IBM's technology. The media has already started reporting on it."

Smith put down his coffee cup and quickly glanced at the documents.

“This Su Ninggan… he’s moving too fast.” He frowned. “Contact him immediately; I need to know the details.”

The call was answered at nine o'clock.

"Mr. Gan, what's going on with the Shanghai project? Why wasn't it reported in advance?" Smith asked seriously.

Suning explained over the phone: "Minister Smith, this project is completely compliant. The technology is a 3-micron process authorized by IBM, which has been registered with the U.S. Department of Commerce and is at the level of technology that is allowed to be exported. The investment amount is $500 million, which complies with all foreign exchange control regulations."

"But what about the impact? Do you know how many people in Congress are watching you right now?"

“I know. But business is business. Shanghai has the best conditions and the lowest costs, so I have no reason not to go.”

"Singapore, Taiwan, Japan... with so many choices, why China in particular?"

"Because the Chinese market will be huge in the future, we need to plan ahead." Suning was very direct. "Moreover, this factory mainly serves the Asian market and will not affect employment in the United States."

"But it affected the stock price! LEM fell 10% today!"

"Short-term fluctuations are normal. Once the factory is completed and put into operation, and the performance improves, the stock price will recover."

Smith sighed. "Mr. Gan, I'm reminding you, these are very sensitive times. It's an election year, and anything related to China is very sensitive. You'd better watch your step."

After hanging up the phone, Smith told his secretary, "Notify the antitrust office to reassess Lemon Technology's market position. Also, have the intelligence department investigate whether Suning has any special relationship with Beijing."

"it is good."

……

For the next three days, the media went completely crazy.

The New York Times front page: "Lemon Tech's China bet: a business decision or a technology transfer?"

Washington Post editorial: "The Chinese Sentiments of Chinese Entrepreneurs: Su Ninggan's Vietnam Story Resurfaces"

The Los Angeles Times investigative report: "Exclusive Reveal: The Truth Behind Su Ninggan's Refusal to Fire on Foreign Engineers in Vietnam."

On television, major news channels bombarded the media with reports.

CNN invited former Vietnam War veteran John Miller.

“Yes, I know Suninggan. In Vietnam in 1969, our platoon was carrying out Operation Nightingale when we spotted a group of foreign engineers. We were ordered to open fire, but Suninggan strongly objected, saying they were non-combatants. In the end, we withdrew without engaging in combat.”

The host asked, "Do you think this was out of sympathy, or because of his Chinese heritage?"

“I don’t know. But the fact is, he protected foreign military personnel.”

Fox News went even further, with the host saying, "A person who favored China on the battlefield is now bringing America's most advanced chip technology to China. Shouldn't we be wary of this?"

NBC was relatively objective, interviewing economic experts.

"From a business perspective, building a factory in Shanghai is a reasonable choice. It's cheaper and closer to the market. But from a national security perspective, there is indeed a risk of technology proliferation. The key question is, is 3-micron technology considered a core secret?"

"IBM says this is technology from five years ago."

"But in China, this is still the most advanced technology."

……

Tuesday, October 4th.

LEM opened and immediately dropped to $38.

A large number of sell orders flooded in, and institutional investors began to reduce their holdings.

Goldman Sachs downgraded its rating on LEM in a report: "Given the increased geopolitical risks, we have downgraded LEM from 'Buy' to 'Hold' and lowered our price target from $55 to $42."

Morgan Stanley went even further, downgrading its holdings to "underweight" with a target price of $35.

By Wednesday's close, LEM had fallen to $33, a cumulative drop of over 30% in three days.

Its market value evaporated by more than $60 billion.

On Thursday morning, April 12, an emergency meeting was held at Lemon Technology's Santa Monica headquarters.

All the executives looked grave.

CFO Kevin reported first: "Boss, in the past three days, our market value has lost $63 billion. Seven institutional investors have explicitly stated that they will reduce their holdings, and three hedge funds are shorting us."

"How much short selling volume?" Suning asked.

"It has already reached 8% of the circulating shares, and it is still increasing."

Marketing Director Lisa said, "The media is completely out of control. Nobody reads our statements; everyone is focused on the Vietnam War. CNN wants to interview you, Fox wants you to be on a live debate, and NBC wants an in-depth interview."

“Reject everything,” Su Ning said. “Saying anything now will only add fuel to the fire.”

General Counsel Robert cautioned, "What's more troublesome is that the SEC (Securities and Exchange Commission) has sent an inquiry letter asking us to explain the compliance of the Shanghai project and whether it involves any undisclosed material risks. If our response is unsatisfactory, they may launch an investigation."

"We responded as required, and all documents are compliant," Suning said.

Morris Chang called from Singapore: "Boss, the Singapore government has officially sent a letter requesting renegotiation of the investment terms. They said that if the Shanghai project is larger, Singapore's preferential policies will need to be adjusted."

The negotiations with Singapore were just something to do along the way. "What a joke! They just announced they were giving them a hard time by abandoning their investment in building a factory in Singapore. I think they're being disingenuous with them."

"But……"

"No buts! If the Shanghai project runs into problems, then we'll expand the factory in the United States."

"Okay! I'll hold a press conference here."

Chen Weiming called from Shanghai, his voice more urgent: "Mr. Gan, we've heard the news here too. Deputy Director Li asked me if the project would be affected. I said no, but... to be honest, I'm not sure myself."

There was silence in the conference room.

Everyone was looking at Suning.

"Everyone," Su Ning began, his voice calm, "first of all, the Shanghai project will continue to move forward. The contract has already been signed, and there's no going back. Moreover, I believe this decision was correct—Shanghai's conditions are indeed the best."

“But the stock price…” Kevin worried.

“We can’t control short-term stock price fluctuations,” Suning said. “But in the long run, as long as the factory is built and performance improves, the stock price will recover. Now we need to do a few things.”

"First, Kevin, you're in charge of communicating with investors. Hold conference calls to explain the business logic of the Shanghai project, emphasize technical compliance, and assure them that the factory will primarily serve the Asian market and will not affect the US business."

"Second, Lisa, you're in charge of the media. No need for a statement. Just arrange for me to do an exclusive interview with The Wall Street Journal. We'll only talk about business, not politics, and definitely not Vietnam."

"Third, Robert, you're in charge of dealing with the SEC and the Department of Commerce. All documents are ready and can be submitted at any time."

"Fourth, Chen Weiming, tell the Shanghai side that everything will proceed as usual. If anyone asks, just say it's a purely commercial investment."

"Fifth," Su Ning paused, "contact our friends in Congress, lobby those who need to lobby, explain those who need to explain. As for the amount of money needed, just approve it directly." ...

Friday, January 4th.

The worst news has arrived.

The office of the chairman of the Senate Commerce Committee sent a notice that the committee plans to hold a hearing on "risks of high-tech companies investing in China and technology transfer," and invites executives from companies such as Lemon Technology, IBM, and Motorola to attend.

“This is aimed at us.” Robert looked at the notice. “Boss, if we go to the hearing, we’ll definitely be asked about Vietnam and our relationship with China. If we don’t go, it’ll be contempt of Congress, which is even worse.”

"When?"

"Tentatively scheduled for two weeks later."

"Prepare the materials, I'll go," Su Ning said.

"But those lawmakers will make things difficult for you..."

"I'll go even if they make things difficult for me," Su Ning said firmly. "There's no way to avoid it."

Over the weekend, things took an unexpected turn for the better.

On Saturday morning, Lawrence Klein, director of the White House Council of Economic Advisers, called Deputy Secretary Smith.

"Frank, the president has given instructions regarding Lemon Technology."

"What instructions?"

“Don’t overreact,” Klein said. “The president sees this as normal business investment. 3-micron technology isn’t the most advanced, and China will master it sooner or later. Integrating China into the international system through business cooperation is more beneficial than imposing a blockade.”

"But what about Congress..."

“We will work on that. You should also control things appropriately on your end and not put too much pressure on the company.”

"understood."

On the same day, The Wall Street Journal received an anonymous document, which was a Pentagon assessment report.

The report shows that 3-micron process technology is mainly used for civilian chips, while military chips require more advanced sub-1-micron technology.

Moreover, China has already acquired similar technologies through other channels, so Lemon's project does not pose a new security risk.

The document was published on the front page of The Wall Street Journal on Sunday.

Market sentiment eased somewhat at the opening on Monday.

LEM stock price stabilized at $32, and even rebounded slightly to $34.

……

Lemon Technology held an investor conference call at 10:00 AM on Monday.

More than 200 institutional investors were online.

Suning himself addressed the investors, saying, "Dear investors, this is Gan from Suning. First, let me clarify a few points: First, the Shanghai wafer fab uses 3-micron technology licensed from IBM, which is registered with the U.S. Department of Commerce and is fully compliant. Second, the fab primarily serves the Asian market, especially customers in Japan, South Korea, and Southeast Asia, and will not compete with U.S. factories. Third, the investment of $500 million will be disbursed over three years, having a limited impact on cash flow. Fourth, the project is expected to begin production in three years and start contributing to profits in five years."

The Q&A session was very pointed.

"Mr. Gan, is the story about the Vietnam War true?"

"That happened fifteen years ago and has nothing to do with current business decisions. At the time, as a soldier, I made what I believed to be the right judgment. The details are recorded in the military archives, and I cannot say more."

Do you have any special feelings for China?

"As everyone knows, I am an orphan without parents. I was born in the Green Fields Orphanage. It was the kind Mrs. Gan who adopted me and became my foster mother. So I was born and raised in the United States and am a true American. Now, I only consider commercial factors when making business decisions."

What if the US government blocks this project?

“We will comply with all laws. But if this happens, the biggest losers will be American investors—because we have already invested our initial capital.”

The conference call lasted for one hour.

Following the announcement, Goldman Sachs analysts updated their report: "Based on our discussions, we believe the risks of the Shanghai project are manageable. We maintain our 'Hold' rating and raise our target price to $38."

Morgan Stanley did not change its rating, but raised its target price from $35 to $36.

……

April 24, three days before the hearing.

Su Ning met with several key members of Congress in Washington.

Republican Senator Johnson asked directly, "Mr. Gan, tell me honestly, are you sent by China or not?"

“Senator, I am an American citizen, I pay taxes in the United States, and I create jobs in the United States. 90% of Lemon Technology’s employees are Americans. If I were sent by China, then I would be a terrible spy—I have created $20 billion in market value for the United States, tens of thousands of jobs, and billions of dollars in taxes every year.”

Johnson laughed: "That makes sense. But you have to understand, many people are worried."

“I understand. That’s why I’m here to explain and communicate.”

Democratic Senator Davis is more concerned about jobs: "Will Shanghai factories steal American jobs?"

"No. The American factory makes high-end products, while the Shanghai factory makes mid-to-low-end products. It's like the automotive industry: the US makes luxury cars, while Mexico makes economy cars. There's no conflict."

"But technology will transfer."

"3-micron technology, technology from five years ago. Moreover, we have strict confidentiality measures, and core R&D remains in the United States. In addition, the previous Lemon computer technology was also technology from ten years ago. Technology transfer allowed Lemon Technology to enter the Chinese market. I really can't think of anything to worry about."

The two-day lobbying effort was quite effective.

At least, the hearings won't be one-sided criticism anymore.

……

Senate hearing on April 27.

The conference room was packed with people, and the media area was filled with cameras and microphones.

Su Ning sat alone in the witness stand, facing a dozen or so senators.

The chairman began by saying, "Mr. Gan, thank you for coming. Today we are going to discuss a serious issue: Does investment by American high-tech companies in China endanger national security?"

“Mr. Chairman, fellow senators,” Suning said calmly, “I don’t think so. There are three reasons: First, the technology being transferred is not the most advanced; second, the investment complies with all laws; and third, it helps American companies compete in the Chinese market.”

Q&A begins.

Sure enough, the first question was about Vietnam.

"Mr. Gan, is it true that you refused to fire on Chinese engineering corps in Vietnam in 1969?"

"It's true. But I want to clarify: I refused to fire not because they were foreign soldiers, but because they were clearly non-combatants—unarmed and repairing a road. According to the rules of engagement, we cannot attack non-combatants. Lieutenant Jansen, the platoon leader, eventually agreed with my assessment and ordered a withdrawal."

"But have you ever considered that the roads built by those engineers might be used to transport weapons to fight the Americans?"

"Intelligence at the time indicated that the road was a civilian road. Moreover, if we opened fire and exposed our position, it might attract the siege of the North Vietnamese regular army, or even escalate the war and cause unnecessary trouble. The risk assessment concluded that retreat was the best option."

"Has this incident affected your current attitude towards China?"

"It doesn't matter. That was a military decision, this is a business decision. They are completely different."

Next, I asked about technical aspects.

"If China obtains 3-micron technology, will it be used for military purposes?"

"Senator, 3-micron technology is mainly used to produce memory, controllers, and consumer electronics chips. Military chips require more advanced processes and special designs. Moreover, to my knowledge, China has already acquired similar technology through other channels."

"Then why do you want to invest in China?"

"Because of business opportunities. China has a billion people and is modernizing, requiring a large number of chips. In addition, their land and labor costs are very low, and they are willing to build dedicated thermal power plants, which is not possible for small places like Taiwan and Singapore. If we don't go, Japanese and European companies will. Then American companies will be excluded from the market."

The hearing lasted three hours.

At the conclusion, the chairperson summarized: "Thank you, Mr. Gan, for your candor. The committee will continue to study this issue. Meeting adjourned."

As I walked out of the conference room, reporters surrounded me.

"Mr. Gan, what do you think the outcome of the hearing will be?"

"I believe the lawmakers will make a wise judgment."

"The stock price has fallen again, now it's $31."

I'm not worried about short-term fluctuations.

……

A week after the hearing, the Senate released its report.

The conclusion is that Lemon Technology's Shanghai project does not pose a significant national security risk, but it is recommended that the Ministry of Commerce strengthen subsequent supervision.

Meanwhile, the Ministry of Commerce updated its export control list, classifying technologies below 1.5 micrometers as sensitive technologies, while keeping the status quo for 3-micrometer technologies.

This means that the Shanghai project can continue.

On the day the news was announced, LEM's stock price rebounded to $37.

A month later, it returned to $40.

Although it has fallen by 13% compared to before the turmoil, it has stabilized.

The protests in Singapore, Taiwan, Japan, and Malaysia have gradually subsided over time.

Singapore adjusted its conditions in an attempt to continue the project, but Lemon Technology completely ignored it.

Taiwan has accelerated the construction of its own wafer fabs.

Japanese companies are beginning to seek cooperation with Lemon Technology in Shanghai.

Malaysia is turning to attract other investments.

Meanwhile, bulldozers have already arrived at the construction site in Pudong, Shanghai.

Chen Weiming called from Shanghai: "Boss, the land is leveled. We'll start laying the foundation next month."

"Okay," Su Ning said. "Proceed according to plan."

"There's one more thing... The Shanghai side asked if we could change the factory name from 'Ningxin Semiconductor Shanghai Factory' to 'Shanghai Ningxin Semiconductor'? It sounds more localized."

"Sure. As long as we have control, we can call it whatever we want."

After hanging up the phone, Suning stood by the office window.

This incident made him realize that once a business reaches this scale, it is no longer just a simple business.

Politics, nation, ethnicity, history... everything gets mixed in.

But the things that need to be done still need to be done.

The Shanghai factory must be built.

Because the future battlefield is in Asia, in China.

Whoever plans ahead first will win.

Stock prices can fall and then rise back up.

Damaged reputation can be repaired.

But once you miss a market opportunity, it's gone forever.

This is why he was willing to risk everything to push forward with the Shanghai project.