Wuhan Gives Up on Troubled $18.5 Billion Chipmaking Project

Wuhan Hongxin Semiconductor Manufacturing Co. Ltd. (HSMC), an $18.5 billion company that aimed to become one of China’s leading high-tech chipmakers, started dismissing employees as hopes for business resumption faded.

HSMC sent notices to all of its workers Friday, company sources told Caixin. The move came more than one year after the project ground to a halt.

The company made clear that “there is no plan for production resumption” and told workers to submit their resignation applications before Feb. 28, one employee said. The person said the company hasn’t offered any compensation plan.

“I didn’t expect HSMC to fail so quickly as there have been speculation that companies such as Xiaomi Corp. or Huawei Technologies Co. might take over,” one employee said.

Established in late 2017 with a planned investment of 128 billion yuan ($18.5 billion), HSMC was set to make logic chips using 14 nanometer and 7 nanometer technology and smaller, which would have made it one of China’s most advanced manufacturers in the field, according to the company website. HSMC was part of a boom in the Chinese mainland’s semiconductor industry as Beijing pushes for self-sufficiency in key tech areas affected by tensions with the U.S.

HSMC originally received strong backing from the Wuhan government in central China. But the project never proceeded as expected and was shaken by a series of troubles since last year. In November 2019, a local court suspended HSMC’s right to use the land where it was building a factory amid a dispute with one of the engineering firms involved.

A person close to the project said HSMC started experiencing a cash crunch in June 2020 with difficulty paying suppliers.

In July last year, a government report found that HSMC was suffering from a large funding shortfall that could bring it to halt at any time. According to the report, the venture had yet to receive the lion’s share of its planned funding, or 112.3 billion yuan of the originally planned 128 billion yuan.

According to the report, the project essentially ground to a halt amid the unlikely prospect of getting any of its remaining funding anytime soon.

A Caixin investigation also found that the plant’s technological capacity was largely exaggerated. The local government said HSMC owns an advanced lithography machine produced by the Dutch company ASML Holding NV that is the most cutting-edge piece of equipment ever imported into China. But analysts said the information was misleading as the HSMC gear is just one of several imported machines capable of producing 7 nanometer chips in China.

An HSMC executive told Caixin in February that the local government had taken over the project and “was hoping to revive it.”

A person close to the Wuhan government said authorities considered inviting new investors into HSMC while adjusting the project plan. But raising enough funding was a challenge.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com).

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