Nexperia Halts Wafer Supplies to Chinese Plant Amid Chip Disruptions

Nexperia's Supply Suspension Overview

By Che Pan and Wen-Yee Lee

Background of the Dispute

BEIJING/TAIPEI (Reuters) -Dutch chipmaker Nexperia has suspended supplies of wafers to its Chinese assembly plant, according to a letter addressed to its customers that was reviewed by Reuters, which could exacerbate a supply squeeze that is worrying automakers worldwide.

Impact on the Semiconductor Industry

The letter, which was dated October 29 and signed by Nexperia interim CEO Stefan Tilger, said the company imposed the suspension on supplies to its plant in Dongguan, in southern China's Guangdong province, on October 26, saying it was "a direct consequence of the local management's recent failure to comply with the agreed contractual payment terms."

Responses from Automakers

Since earlier this month, Nexperia has been locked in a dispute with its Chinese unit after the Dutch government took control of Nexperia from its Chinese owner Wingtech Technology on September 30. It also removed its Chinese CEO, citing concerns that its technology could be appropriated by Wingtech.

Nexperia's move came after the Dutch chipmaker's Chinese unit resumed supplying semiconductors to local customers but stipulated that all sales to distributors would need to be settled using the Chinese yuan. Previously, transactions had been settled with foreign currencies like the U.S. dollar.

The company produces large volumes of chips in the Netherlands that are widely used in the automotive and consumer electronics industries. Some 70% of the Netherlands-produced chips are packaged in China and sold mostly to distributors.

"While we have maintained shipments for as long as commercially feasible, continuing the current flow of supply from our front-end sites is no longer justifiable," the letter said.

"Unless these contractual obligations are fully satisfied, we cannot resume wafer supply to the site. Nexperia is developing alternative solutions to ensure (that) supply (is) continuing to our customers."

Nexperia added that the decision did not reflect an intention to withdraw from its site in Dongguan or from the Chinese market as a whole, adding that it remained committed to finding a resolution to the problem.

Nexperia said it is financially independent of Wingtech and it does not raise capital from Wingtech, the letter showed.

Nexperia confirmed that it sent the letter but said it could not comment further. Nexperia China and Wingtech did not immediately respond to requests for comment.

Court filings showed that the seizure by the Dutch government came as U.S. pressure was rising on Nexperia after Wingtech was placed on a restricted-export list, though Dutch authorities say governance shortcomings were the trigger.

On October 4, China's commerce ministry blocked Nexperia from exporting chips from China.

Industry bodies have sounded the alarm over the possible impact on production, with Stellantis saying on Thursday that it had set up a "war room" to monitor the situation.

Japanese automaker Nissan said it had enough chips at the moment to last until the first week of November without disruption.

Some Nexperia products that used to cost just a few Chinese cents have gone up in price to two or three yuan each over the past two weeks, more than 10 times their original cost, according to a source familiar with the matter.

(Reporting by Che Pan in Beijing and Wen-Yee Lee in Taipei; Writing by Brenda Goh; Editing by Jacqueline Wong and Thomas Derpinghaus)