Silex: Blocked by Swedish ISP! Silex terminates technical cooperation with Silex Beijing

On October 8, Saiwei Semiconductor issued an announcement that its application for special export license was rejected by the Swedish Strategic Products Inspection Authority ISP.

It was disclosed that on October 5, 2021, Saiwei Semiconductor received a notice from the management of its controlling subsidiary Silex Microsystems AB (hereinafter referred to as "Sweden Silex") that Sweden Silex had received the official decision of the Swedish Inspectorate of Strategic Products (ISP) and confirmed by the on-site meeting between the management of Sweden Silex and ISP. The application for license submitted by Sweden Silex to the Swedish ISP in November 2020 for the export and formal production of the first batch of MEMS products to the company's controlling subsidiary Selex Microsystems Technology (Beijing) Co., Ltd. (hereinafter referred to as "Selex Beijing") was rejected by the Swedish ISP. That is, the Swedish ISP prevented Sweden Silex from continuing to conduct the following transactions with Selex Beijing: (1) Exporting technologies, software and products related to MEMS manufacturing, development, testing or analysis equipment, which can be used to develop and manufacture MEMS products; (2) Exporting MEMS infrared microbolometers, MEMS accelerometers, MEMS gyroscopes and related technologies. In the above-mentioned decision document, the Swedish ISP believes that according to the relevant provisions of Section 25 of the Swedish Act on the Control of Dual-Use Goods and Technical Assistance, Swedish Silex is not allowed to appeal the decision.

According to the official decision and the content of the on-site meeting, Silex of Sweden is unable to continue to perform the "Technical Service Agreement" and "License Agreement" signed between it and Celex Beijing in 2018 due to external force majeure, which means that the technical cooperation between the two parties will continue to be suspended since the fourth quarter of 2020. Celex Beijing's 8-inch MEMS production line needs to continue to explore related production know-how independently, and it may take more time and cost to achieve process maturity; the expansion of foundry MEMS wafer categories will continue to rely on itself and cannot be accelerated through the technical support of Silex of Sweden; for Silex's original Chinese mainland customers, their plans to transfer production to Celex Beijing may also be slowed down.

Sweden's Silex's global MEMS process development and wafer manufacturing business is not affected by the Swedish ISP's decision.

Since the Swedish ISP decided in October 2020 that the transaction between Sweden Silex and Selex Beijing required an export license from it, the company and the Swedish Silex management actively responded based on rational analysis and submitted an application to the Swedish ISP in November 2020 for a license to export and formally produce the first batch of MEMS products-related technologies and products to Selex Beijing, and hired the Swedish Setterwalls Law Firm (a well-known Nordic law firm established in 1878, providing legal services to many well-known large and medium-sized companies and institutions in Sweden, Northern Europe and even the world, and foreign-related business accounts for 50% of the entire law firm's caseload) to evaluate the ISP's decision and related legal risks. The legal opinion issued by Setterwalls in January 2021 stated that "the ISP decision indicates that certain MEMS technologies constitute dual-use items that require an export license (because such technologies can be used for military purposes). If Sweden Silex exports the relevant technologies to China after the Swedish ISP makes the ISP decision, most of the technologies are likely to require an export license. If the Swedish ISP can determine based on the relevant application that the exported technology will not be used for military purposes or pose a risk to public security/human rights after export, the Swedish ISP should grant the export license. Given that Sweden Silex has submitted the relevant application to the Swedish ISP and fully provided relevant information about Celex Beijing to confirm that the cooperation between the two parties will not be used for military purposes or pose a risk to public security/human rights, the Swedish ISP should grant the export license if the current situation does not change (i.e. the outbreak of war or armed conflict). Therefore, the risk of the Swedish ISP preventing Sweden Silex from exporting products and technologies to Celex Beijing is low. However, considering the complex international political environment at present, it is not entirely certain how the relevant laws and regulations on the export of dual-use items in Sweden and the EU and the Swedish National Security Protection Act and its amendments will be interpreted and applied in practice. The company is at risk of not being granted an export license for the technology it introduces from Sweden Silex."

At the same time, the company and the management of Sweden Silex have been working hard to communicate with the relevant departments of the Swedish government, stating that when Sweden Silex and Celex Beijing signed the "Technical Service Agreement" and "License Agreement" in 2018, there were no Swedish laws and regulations to restrict this or the Swedish government departments to require review or restrictions. The text of the relevant agreement complies with local laws and regulations, and Celex Beijing's MEMS business will not be used for military purposes or pose risks to public safety/human rights. It is hoped that the normal technical and commercial cooperation between the two parties will be treated fairly and impartially by the Swedish government. After about a year of evaluation and communication, the Swedish ISP still made a decision to reject the above-mentioned export license application. The company deeply regrets this decision. The company solemnly declares that since the company started its semiconductor business, it has been isolated from the original navigation and avionics business, and as of now, the company has completely divested its avionics and inertial navigation business. The company's business does not involve military purposes and will not pose risks to public safety/human rights; the company has always operated legally and in compliance with regulations, and the company and its subsidiaries' business activities at home and abroad strictly comply with the laws and regulations of the relevant countries and regions involved.

Saiwei Electronics pointed out that since the fourth quarter of 2020, the technical cooperation between Sweden Silex and Silex Beijing has been suspended, and the production and operation activities of the two holding subsidiaries are operating normally. The company believes that this matter has no significant adverse impact on the company's short-term operations and financial situation, but has an adverse impact on the medium- and long-term development of Beijing FAB3. The company and the management of Sweden Silex will continue to communicate with relevant Swedish government departments and take all feasible measures as appropriate to actively seek possible solutions on the basis of Beijing FAB3's self-reliance, and strive to minimize the adverse effects of the Swedish ISP's decision.