Dehuai Semiconductor was involved in a "corruption" case and its 4.6 billion yuan investment became an abandoned

After struggling for several months, Dehuai Semiconductor (hereinafter referred to as "Dehuai") finally came to the end of its road.

Most Dehuai employees have also felt this more and more clearly. Since the Spring Festival holiday, Dehuai has stopped working for more than 50 days and there is still no sign of resuming work. Although the Huai'an government has long announced to the public that "enterprises can resume work on their own without government approval", Dehuai still responded to employees who asked "when to go back to work" that "it is waiting for government approval."

But the real situation is, "We have no money to resume work. Since the salary arrears began in October 2019, Dehuai has accumulated 3.5 months of salary arrears for employees." Several people familiar with Dehuai told Jiwei.com, "Now Dehuai has been completely cut off from food and cannot get the money to pay salaries. There will be no new financing coming in, and the shutdown may be extended indefinitely."

Dehuai, which once claimed to have invested 45 billion yuan, has actually completed an investment of 4.6 billion yuan. However, very little of the money has actually been used to purchase equipment and build production lines. According to estimates, Dehuai needs at least 3 billion yuan to purchase equipment before it can enter the "production line operation" stage.

However, the "production line operation" is nowhere in sight, and the local government, which almost independently supported 4.6 billion yuan in funds, has refused to pay any more funds to Dehuai. Once the signboard of Huai'an's semiconductor industry, it has now been removed from the Huai'an government's 2020 work report and kicked out of the list of major projects in Jiangsu Province in 2020.

The star project, which consumed the entire fiscal revenue of Huaiyin District for two years, has now been abandoned.

Hundreds of millions owed

In 2017, with the first investment of 2.2 billion yuan from the Huaiyin government, Dehuai Semiconductor came into being. Within a year, it successively announced a series of progress, including the completion of topping-out, equipment entering the factory, mass production, and realization of revenue.

However, the strong rise like a comet soon ushered in the fall like a meteor. In March 2019, the industry began to spread the news that Dehuai Semiconductor owed suppliers money; afterwards, in October 2019, Dehuai Semiconductor employees broke the news to Jiwei.com that "Dehuai has no funds to pay September salaries" and that the so-called "mass production" and "income" are "the emperor's new clothes". Although Dehuai purchased some second-hand equipment, it was far from enough to build a production line, and the purchased equipment had been idle for more than a year.

Such a reversal of reality is far more shocking than its original sudden appearance.

"In October 2019, Dehuai had no money, but the management was still looking for money at the time." Jiwei.com learned from multiple sources, "In November 2019, Dehuai finally received a small central government grant of tens of millions. After that, all executive salaries were stopped, and the funds were used to pay employees' salaries, but the funds were limited and only 50% could be paid. But this money only lasted until January. After the December salary was paid, there was no money at all."

According to normal standards, from October 2019 to date, after calculating the double salary at the end of the year, Dehuai should have paid employees six months' salary, but it has only paid 2.5 months. "We still owe you three and a half months' salary. If we don't pay you on March 10, it will be four and a half months." Several Dehuai employees revealed, "According to all employees, the salary arrears is nearly 100 million yuan." Dehuai had nearly 1,000 employees at the beginning of 2019. Although a large number of employees have left, there are still nearly 400 people waiting for Dehuai to resume work.

At a general staff meeting at the end of 2019, Dehuai told employees that "the issue of unpaid wages will be resolved on May 10." "But this is just a perfunctory response after pressure from the city's human resources and social security department. The company is no longer able to solve any problems."

In fact, in addition to the unpaid wages, Dehuai also has a large amount of supplier payments and debtor loans to repay. Currently, many companies such as Shenzhen Zhuoling, Xiewei Integration, Shanghai Xijie, and Shanghai Huaxun have sued Dehuai Semiconductor to recover the outstanding debts due to contract disputes. People familiar with the matter revealed that Dehuai currently has more than 100 million yuan in accounts payable.

At the same time, "when the government invested, it also provided Dehuai with a large amount of loans, including private loans, bank mortgages, etc.," said a person close to the investment level. "This also included hundreds of millions of loans that government officials helped Dehuai borrow from social capital, which are now unable to be repaid."

According to the "Huai'an 2020 Major Project Investment Plan", as of the end of 2019, the Dehuai project had actually invested 4.6 billion yuan. However, the 4.6 billion yuan of funds only left a Dehuai Semiconductor that had accomplished nothing, with hundreds of millions of yuan in unpayable accounts.

Where did the 4.6 billion go?

Where did the 4.6 billion go? There are many questions about the whereabouts of the funds.

According to statistics compiled by Jiwei.com from multiple news channels: "Dehuai's largest expenditure is not the purchase of equipment, but infrastructure. China Railway 25th Bureau won the bid for the EPC general contracting of the Dehuai Semiconductor Project with a bid amount of 2 billion yuan, and the actual payment has been about 1.8 billion yuan. Among the general contracting projects, the largest subcontract is the production line project including clean rooms and electromechanical systems, with an amount of 1.117 billion yuan."

Jiwei.com consulted several domestic wafer fab executives and learned that "Dehuai's engineering costs far exceeded normal industry standards. Normally, his EPC general contract would not exceed 1 billion, but the price was inflated by twice."

At the same time, the cost of the production line project also exceeded the industry's cognition. According to the information obtained by Jiwei.com, a total of four companies participated in the bidding for the project, namely China Electronics System Engineering Fourth Construction Co., Ltd., Asia Sky System Integration Technology (Suzhou) Co., Ltd., Shenghui Engineering Technology (Suzhou) Co., Ltd., and Shaanxi Zhongdian Jingtai Electronic Engineering Co., Ltd., with bids of 869 million, 1.118 billion, 1.098 billion, and 1.11661 billion yuan respectively. In the end, Zhongdian Jingtai won the bid with 1.11661 billion yuan.

An insider revealed to Jiwei.com: "According to Dehuai's bid, the entire project can be completed with 600 million yuan. Zhongdian Jingtai's price has a profit of more than 500 million yuan, which is close to half." Several senior executives of wafer fabs in the industry also gave basically consistent judgments.

The second largest expense is human cost. "Dehuai's salary is much higher than the industry average. All senior executives have an annual salary of more than several million yuan, and employees recruited from Taiwan have a monthly salary of more than 30,000 to 50,000 yuan. The total number of employees once expanded to nearly 1,000. The current salary expenditure is estimated to be 650 million yuan." Several Dehuai employees analyzed to Jiwei.com, "There is also a Japanese team that devours money, with only 64 people at most, and most of them are nepotism. But in order to maintain this team, a total of 350 million yuan has been spent."

Dehuai's "core technology" originated from Toshiba's CIS team in Japan. In December 2015, Toshiba's CIS business was acquired by Sony. Toshiba's CIS team sought their own way out. Coincidentally, Dehuai was planning in China. In April 2016, the team registered IDTC in Japan and became Dehuai's design company. However, in more than three years, IDTC, which Dehuai supported with huge funds, did not develop any product with market significance.

Equipment ranks third in Dehuai's expenditure, which is very different from the cost structure of all wafer fabs. Several senior wafer fab executives said: "Now, equipment costs account for at least 50% of wafer fab costs, and new fabs even reach 70%." In Dehuai, equipment costs account for less than 15%, totaling only 600-700 million yuan. Moreover, according to Dehuai employees, "The second-hand equipment that Dehuai bought from Intel in Dalian is too old and can't meet the process requirements of Dehuai's plan. The investor also questioned the Dehuai team on this issue, 'Why did you buy these completely useless equipment?', but the problem can no longer be solved."

The intellectual property purchased for 450 million yuan also overturned the industry's perception. Dehuai Semiconductor signed agreements with ON Semiconductor and STMicroelectronics to pay each other 52.5 million US dollars and 27 million US dollars respectively to purchase intellectual property. A senior executive of an international company told Jiwei.com: "The normal practice in the industry is to pay 30-50% at most at this stage of Dehuai, and the rest will not be paid until the product is launched." However, according to the financial report of ON Semiconductor, Dehuai had basically paid the full amount by the end of 2017. Before licensing to Dehuai, ON Semiconductor's annual financial reports did not have any income based on patent licensing.

All kinds of strange capital flows keep proving one fact: limited funds are not concentrated on the main task of "building a 12-inch wafer factory with an annual production capacity of 240,000 pieces", and perhaps this is not Dehuai's main purpose.

Corruption "nest case"