Troubles under the sea and in the cloud

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Hi, This is Kenji in Hong Kong.

Lenovo on Wednesday became the latest company to hold its first annual earnings briefing since the pandemic.

Speaking at a hotel in central Hong Kong, management, including chairman and chief executive officer Yang Yuanqing, tried to focus on the positives: revenue and earnings growth in its two segments other than PCs and the prospect of a rapid recovery in the its core PC business, which was impacted by weak demand and excess inventories.

But the spotlight was stolen from less optimistic news after it was revealed during the press conference that the company has cut at least 5% of its workforce. Earlier the same day, news broke that Alibaba’s cloud computing business will reduce its workforce by 7%.

But job cuts like these are just a headache for the tech sector. Politics is another. A key aspect of the recent G7 summit in Hiroshima was the demonstration of a renewed cohesion among Western leaders against China. This included the adoption – for the first time ever – of a statement condemning Beijing’s “economic coercion”.

China has directly opposed Japan’s G7 presidency, and Vice Foreign Minister Sun Weidong summoned Japanese Ambassador Hideo Tarumi to Beijing on Sunday to express his country’s “strong dissatisfaction and resolute opposition” to the statements. Tarumi responded by saying the G7’s response was “only natural” and it is China that needs to change course.

The tech world has good reason to worry about this kind of diplomatic back-and-forth. Political tensions are already hampering what should be a relatively simple endeavor: building and improving the undersea cables needed to keep the internet connected.

High voltage cables

Multi-million dollar undersea cable projects have become the latest focal point of geopolitical tensions in Asia as China steps up its much disputed claims on the South China Sea, writes the Singapore correspondent of Nikkei Asia Tsubasa Suruga.

These cables are critical in maintaining the flow of information throughout the region and across the Pacific. Most countries require builders to obtain approval if they intend to lay cables in their territorial waters, but not in their exclusive economic zones, which extend 200 nautical miles from a country’s coast.

China, however, insists that projects within its self-proclaimed “nine-dash line” — an area encompassing virtually the entire South China Sea — need Beijing’s approval. A letter of non-objection must be obtained from the Chinese People’s Liberation Army before the formal application process can even begin. Beijing enforces the policy even as an international tribunal ruled in 2016 that the nine-dash line lacked a legal basis.

“It’s no secret that the whole industry is most confronted with politics,” said Takahisa Ohta, senior director of the submarine network division at NEC, one of the world’s top three suppliers of submarine cables.

Some of the companies involved, such as Singtel, are looking at ways to diversify their routes. Tay Yang Hwee, a 30-year industry veteran who leads submarine cable development at the Singapore telecom provider, said he was “exploring alternative routes” to connect data hubs, but admits it was “very difficult” avoid the South China Sea as a whole.

Watch out for the curbs

China’s semiconductor industry fears that Japan will restrict exports of chip-making equipment so expansive which risk affecting its production of lower-grade silicon used in everything from cars to washing machines, writes the Financial Times Qianer Liu, Kana Inagaki AND Anna Grosso.

Tokyo plans to restrict exports of 23 types of chip-making equipment from July as it aligns with the US and the Netherlands in tightening controls that could limit China’s access to cutting-edge chips. Chinese foundries rely on swarf-making tools imported from the United States and Japan.

Japan’s specifications include core chips made at 45 nanometers, beyond the 14/16 nm threshold in Washington controls put in place in October, Chinese industry executives said. China’s Semiconductor Industry Association warned last month that Tokyo’s equipment export controls were “too broad” and called on Beijing to respond.

The nanometer node refers to the generation of chip manufacturing technology. As a general rule, the smaller the number, the more advanced the chip.

The planned regulation also means that Nikon-supplied immersion lithography used to make 45nm chips could potentially be restricted from being sold in China because some of the technology may be essential in the production of advanced chips.

To sell or not to sell

Beijing’s move to ban the purchase of some products made by US chipmaker Micron Technology due to “serious network security risks” has left the company’s South Korean rivals – Samsung Electronics and SK Hynix – facing a dilemma.

The question is whether to fill the supply gaps left by Micron’s ban e shocked the United Statesor refrain from doing so and annoy China, according to Kim Jaewon, Lauly Li and Cheng Ting-FangNikkei Asia tech journalists in Seoul, Taipei and London.

On paper, the South Korean duo and other Western players could take advantage of the situation to expand their market share in China, but experts say they’re unlikely to do so given their reliance on US chip-making equipment.

Samsung and SK Hynix both make memory chips in China, but to keep those facilities running they need American equipment, which they can only continue to import with a special permit from Washington, which could be revoked at some point.

Cloudy weather

Alibaba’s cloud arm is cutting about 1,000 employeesor 7 percent of its workforce, as it prepares for a spin-off and eventual initial public offering, writes Nikkei Asia’s Cissy Zhou in Hong Kong.

Alibaba as a group has embarked on a historic restructuring that will see the tech giant split into six major business groups, with its cloud arm being one of them.

Like its peers, Alibaba has been forced to cut costs and reduce headcount recently. Last year she cut nearly 20,000 jobs and 4,500 more employees exited in the first three months of the year, leaving her with a total headcount of 235,216 at the end of March.

Alibaba is the largest public cloud service provider in China and the company is its second largest source of income after e-commerce. But renewed competition from rivals such as Huawei and the country’s three telecom operators has forced it to cut prices.

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#techAsia is coordinated by Katherine Creel of Nikkei Asia in Tokyo, with assistance from the FT tech desk in London.

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