Tech Giants: Starting from Bankrupt Companies

122: Chapter 122: The Moment of Collapse. The Cutting Apart of PartnersGermany, Wolfsburg, 2:00 AM, December 8th.

Inside the Volkswagen Group headquarters, the boardroom was brightly lit. Outside the window, the winter night in this car city was cold and silent, but the atmosphere inside the meeting room was like a pressure cooker about to explode.

CEO Herbert Diess sat at the end of the long table, his third cup of coffee in front of him. He was fifty-nine, his hair graying, and he was known for reforming Volkswagen with an iron fist, but at this moment, the face of this German industrial giant’s helmsman was etched with exhaustion and helplessness.

”Ladies and gentlemen,” Diess said, his voice hoarse. ”You have all seen the ultimatum from the American Department of Commerce. If we do not terminate all cooperation with Xinghuo within twenty-four hours, Volkswagen’s operations in America will face comprehensive sanctions—including the suspension of all vehicle certifications, the imposition of 25% tariffs, and a ban on us using any American technology.”

There was a deathly silence in the meeting room. The clock on the wall ticked away, each second feeling like a hammer blow to everyone’s heart.

CFO Karl-Heinz pulled up the data: ”We have already invested 8 billion euros in our joint venture project with Xinghuo. The Wolfsburg factory is currently installing the production line, and it is scheduled to start producing Xinghuo’s hybrid systems next month. If we terminate now, the direct loss will exceed 2 billion euros, and the indirect losses will be immeasurable.”

”The more serious issue is the Chinese market.” Hans Schmidt, President of the China region, added, ”We just announced our cooperation with Xinghuo, which was hailed as a ’model of Sino-German industrial cooperation.’ If we suddenly terminate it now, how will Chinese consumers view Volkswagen? How will the government view us?”

Diess closed his eyes and rubbed his temples with his fingers. He recalled the scene three months ago when he met Su Chen in Shenzhen. That young Chinese entrepreneur had something in his eyes that he rarely saw—not a thirst for profit, but a devotion to technology. Su Chen had said: ”Mr. Diess, we are not cooperating for money, but to prove that the East and the West can create better things together.”

Now, that sentence felt like irony.

”Politics overrides business.” Diess finally said, his voice filled with a deep sense of powerlessness. ”I am sorry, but we must terminate the cooperation.”

He looked at the General Counsel: ”Issue the statement. The wording... keep it as gentle as possible. Just say, ’Complying with international laws and regulations is the basic obligation of a multinational corporation.’”

”What about the German workers?” the Human Resources Director asked. ”The joint venture factory employs 1,200 German workers; they will be unemployed next week.”

Diess was silent for a long time: ”Compensate them at the highest standard. Also, try to arrange transfers to other factories. This is all I can do.”

The meeting ended at 3:00 AM. Diess was the last to leave the boardroom, standing before the huge floor-to-ceiling window, looking at the sleeping city of Wolfsburg. This city was born for cars, and it would also experience growing pains in the massive upheaval of the automotive industry.

And far away in Shenzhen, Su Chen would see that cold termination letter in a few hours.

At the same time, Munich, Infineon headquarters.

The atmosphere in the meeting room was even more intense. Technical Director Friedrich Müller—the German engineering professor who had strongly advocated for the cooperation with Xinghuo—was flushed, his fist slamming onto the tabletop.

”This is our only chance to get rid of our dependence on American technology!” Müller’s voice was almost a roar. ”Xinghuo’s FD-SOI process, combined with our automotive chip design capabilities, could create automotive-grade chips that are completely independent of American technology! This opportunity comes once in a decade!”

CEO Karl Benz’s face was livid: ”Friedrich, I know. But the reality is: if we do not terminate the cooperation, America will ban the export of all American technology to Infineon. Without EDA software and some key equipment, our factory will not last three months. By then, let alone new projects, our existing business will collapse.”

”Then find a way to bypass it!” Müller refused to give up. ”We can move the technical team to Switzerland, and go through a third party...”

”The document from the American Department of Commerce is explicit.” The General Counsel interrupted him. ”Any attempt to circumvent sanctions will lead to the personal prosecution of executives. Karl, Friedrich, do you want to go to prison in America?”

The meeting room fell silent again.

Benz recalled the voice of Lin Wan on the phone. The Chinese woman had said in fluent German: ”Mr. Benz, we understand your situation. But please believe that history will remember who chose morality and who chose submission today.”

Morality? In the business world, survival is the highest morality.

”The project is suspended.” Benz finally said, each word squeezed out from between his teeth. ”But keep the technical team, and make a complete backup of all R&D materials. We will wait for... a political turning point.”

After the meeting, Benz called Müller into his office. Closing the door, he whispered: ”Make three backups of the technical documents. One at the company, one on your personal encrypted hard drive, and one... send it to Xinghuo through a secure channel.”

Müller was shocked: ”Karl, this is illegal!”

”That’s why no third person can know.” Benz stared at him. ”Friedrich, I am sixty years old, and my career is almost over. But you are still young, and your team is still young. If one day in the future the world needs a technological route that does not depend on America, I hope you still have the seeds in your hands.”

He paused: ”And I believe that the Chinese will not lose. They have something we Germans do not have—endurance. Even if they are blocked a hundred times, they will try the one-hundred-and-first time.”

Outside the window, snow began to fall in the Munich night sky. This was the first snow of the year in Germany, coming unusually early and unusually cold.

Shenzhen, Xinghuo Building.

Lin Wan received the first termination letter at 4:00 AM. Then the second, the third... By 6:00 AM, she had received official notices from seventeen partners.

Mercedes-Benz: Suspend procurement of Xinghuo’s three-electric system, the originally scheduled 2018 assembly plan is canceled.

BMW: Same as above.

Apple: Terminate camera module and battery procurement contracts.

Samsung: Same as above.

United Microelectronics: Stop all foundry services, the 28nm chips already ordered will not be produced.

...

Every email was politely worded, citing legal clauses, but the meaning behind them was cold and bone-chilling: under the pressure of survival, business partnerships are as fragile as a piece of paper.

Lin Wan sat in front of the computer, feeling a wave of dizziness. Over the past three months, she had flown all over the world to establish these partnerships, pouring her heart and soul into every contract. Now, they were gone overnight.

The phone rang; it was the secure number for Infineon’s Benz.

”Ms. Lin, I am very sorry.” Benz’s voice was very soft, with wind in the background, as if he were outdoors. ”We are forced to suspend cooperation. But I promise you: the technical team will be kept intact, and the materials will be fully backed up. As long as the political environment eases slightly...”

”Thank you, Mr. Benz.” Lin Wan tried to keep her voice steady. ”Xinghuo will remember its friends.”

Hanging up the phone, she walked to the window. The sky in Shenzhen began to turn white, and a new day was about to begin. But this day would be the darkest day in the history of Xinghuo.

8:00 AM, emergency business analysis meeting.

In the meeting room, the heads of each business unit had the newly compiled data in front of them. Everyone’s face was as white as paper.

Shen Nanpeng reported the overall situation first: ”According to the termination letters received, our expected revenue for 2018 will be adjusted down from 580 billion yuan to 240 billion yuan, a decline of 58%. Net profit is expected to drop from 120 billion yuan to 80 billion yuan.”

A gasp of air echoed in the meeting room.

”Let’s look at it by segment.” Shen Nanpeng pulled up the charts.

Spark Power (three-electric system) — the hardest hit area.

”Volkswagen, BMW, and Mercedes-Benz have a combined annual procurement of 88 billion yuan, all of which has gone to zero.” Zhao Ming, General Manager of the Power Division, said with a trembling voice. ”The German joint venture factory has stalled, a direct loss of 5 billion. The Saudi factory may also have to shut down due to the cutoff of engine supplies.”

He pulled up the supply chain diagram: ”What is more serious is that many of our key components are imported from Europe—for example, the IGBT modules in the motor controllers come from Infineon and STMicroelectronics. Now these supplies are completely cut off.”

”How much longer can the inventory last?” Su Chen asked.

”Three months.” Zhao Ming said. ”After three months, Red Flag’s production line will also have to shut down.”

Xinghuo Chip — the second hardest hit area.

Li Wanqing’s hands were shaking when she reported: ”All overseas customers for 28nm chips have been lost, with an annual sales loss of 15 billion. The 16nm chip has just been mass-produced, originally planned for export to Europe, but now it is all shelved.”

He pulled up the material list: ”The most fatal thing is the cutoff of materials. Japan’s Shin-Etsu Chemical’s 300mm silicon wafers account for 80% of our demand. Japan’s JSR photoresist accounts for 90%. South Korea’s SK specialty gases account for 70%. These... are all cut off.”

”What about domestic alternatives?” Su Chen asked.

”There are, but...” Li Wanqing smiled bitterly. ”NSIG’s silicon wafer purity is not enough, and the yield will drop by 30%. Domestic photoresist is still in the laboratory stage, and mass production will take at least a year. Specialty gases... there is almost no production in China.”

Xinghuo Electronics (consumer electronics) — the third hardest hit area.

Zhang Yang, General Manager of Xinghuo Electronics, had red eyes: ”The European Union market accounts for 40% of our drone revenue, and now it has all gone to zero. Overseas channels for action cameras are closed. Smart wearable devices have lost support from Apple and Samsung app stores, turning them into bricks.”

Zhang Yang pulled up a map marking Xinghuo Electronics’ global retail stores: ”We have two hundred flagship stores worldwide, mainly in first and second-tier cities. Now these stores... either close down or can only sell inventory.”

Each segment’s report was like a knife, stabbing into the heart of everyone in the meeting room.

Three years of effort, three years of breakthroughs, torn apart by external forces overnight.

Su Chen listened quietly, his face expressionless. When everyone had finished reporting, he asked a question: ”If the worst-case scenario happens, how much longer can we hold on?”

Shen Nanpeng was silent for a few seconds and pulled up the inventory data: ”At the current consumption rate, six months. We cannot import many components; if we can find domestic alternatives later...”

Six months.

The meeting room fell into a deathly silence again. The sunlight outside the window shone in, casting bright spots on the floor, but no one felt the warmth.