Nexperia cuts wafer supplies to Chinese plant, ratcheting up chip disruptions

DutchchipmakerNexperiahas suspendedsuppliesofwafers to itsChineseassemblyplant, according to a letter addressed to its customers that was reviewed by Reuters, which couldexacerbate a supply squeezethat is worrying automakers worldwide.

The letter, dated October 29 and signed byNexperiainterim CEO Stefan Tilger, said theOctober 26suspensionaffectingitsplantin Dongguan, in southern China’s Guangdong province,was”a direct consequence of the local management’s recent failure to comply with the agreed contractual payment terms.”

Nexperiahas been locked in a dispute with itsChineseunit after the Dutch governmenttook controlofNexperiafrom itsChineseowner Wingtech Technology600745.Son September 30. It also removed itsChineseCEO, citing concerns that its technology could be appropriated by Wingtech.

Nexperia’sChineseunithadresumed supplyingsemiconductorsto local customers but stipulated that all sales to distributors would need to be settled using theChineseyuan. Previously, transactions had beeninforeign currencies like the U.S. dollar.

The company produces large volumes ofchips in the Netherlands that are widely used in the automotive and consumer electronics industries. Some 70% of theEuropean-producedchips 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 resumewafersupply to the site.Nexperiais developing alternative solutions to ensure (that) supply (is) continuing to our customers.”

Nexperiaadded that the decision did not reflect an intention to withdraw from its site in Dongguan or theChinesemarket as a whole, adding that it remained committed to finding a resolution.

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

A spokesperson forNexperiaconfirmed it sent the letter and the company could not comment further.NexperiaChina did not immediately respond to requests for comment.Wingtech declined to comment.

A Dutch governmentspokespersonreferred questions about thewafershut-off toNexperia, saying the move had been a corporate decision while state intervention “concerns the preservation of production capacity and is not aimed at the company’s day-to-day operations”.

The Netherlands is in discussions with European governments and the European Commission, as well asChineseauthorities, “to work toward a constructive solution,” the spokesperson said.

EU tech chief Henna Virkkunen said after a meeting withNexperiamanagement on Friday that they are working toward a “diplomatic breakthrough” to resolve the situation, but in the meantime they are looking at unspecified short- and medium-term measures to relieve European industry.

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

On October 4, China’s commerce ministry blockedNexperiafrom exportingchips from China.

Industry bodies have sounded the alarm over the possible impact on production, with StellantisSTLAM.MIsaying on Thursday that it had setupa”war room”to monitor the situation.

Japanese automaker Nissan7201.Tsaid it had enoughchips to last until thefirst week of Novemberwithout disruption.

SomeNexperiaproducts that used to cost just a fewChinesecents have goneupto two or three yuan each over the past two weeks, more than 10 times their originalprice, according to a source familiar with the matter.