After Obama Veto

Aixtron Bounces Back

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Augmented reality will soon be more than a video game, and Aixtron plans to cash in on the trend. Picture source: Reuters

What does a German high tech firm do for an encore after the president of the United States personally intervenes to cancel the company’s planned merger with a Chinese investor? Change direction, tighten belts and embark on a new path making equipment for Apple’s next-generation iPhone.

Aixtron, which is located in the small town of Herzogenrath near the Dutch border, is a maker of semiconductor-producing equipment. When the state-owned Chinese firm Fujian Grand Chip Investment came calling in 2016, it offered to pay €670 million ($730 million) for 65 percent of the German company’s shares, giving it control. Aixtron, which had been struggling in the market for LED chips because of heavy competition from Asia, readily accepted the offer.

But the US government had different ideas. Aixtron has a US subsidiary, so the deal had to be cleared by an obscure government panel called the Committee on Foreign Investment in the United States.

Thanks to the new roadmap for the firm, Aixtron’s share price has nearly doubled in the last four months and “the company is not for sale,” Mr. Schindelhauer said.

CFIUS, as it is known, gave the deal a thumbs down on national security grounds, and when it looked like the company might still go ahead, former President Barack Obama intervened to cancel the deal. It was only the third time in his eight years as president that Mr. Obama blocked an acquisition by a foreign company. The German government followed suit and blocked the merger.

“It was a huge problem for the company,” CEO Kim Schindelhauer said in an interview with Handelsblatt, recalling Mr. Obama’s action.

In the year since the merger blew up, Mr. Schindelhauer says he has embarked on a complete reorganization of the company. Thanks to the new roadmap for the firm, Aixtron’s share price has nearly doubled in the last four months and “the company is not for sale,” Mr. Schindelhauer said.

Among the measures taken, Mr. Schindelhauer said Aixtron is cutting its research budget from the past, when it was about 30 percent of annual revenue of €200 million, “which was not sustainable,” to a more manageable 10-15 percent. The firm also sold its loss-making memory chip business in April to South Korea’s Eugene Technology for €48 million.

More importantly, the company seems to have found a new niche which is expected to become highly profitable. One of the hottest tech trends is so-called 3D augmented reality, where a digital image is superimposed on a real video image.

“As we head into Apple later this year, that end market is on the cusp of some big moves. It’s kind of a shot in the arm for Aixtron.”

Andrew Gardiner, Barclays Capital

Apple’s next phone, the iPhone 8, will reportedly contain a laser chip that sends out a beam of light that bounces off objects, helping make an exact measurement of their depth. It will enable such feats as taking a 3D virtual mold of a person’s foot for the creation of custom-made soccer boots. This is good news for Aixtron.

Aixtron has developed tools for the creation of these chips using compound silicon. “As we head into Apple later this year, that end market is on the cusp of some big moves,” said Andrew Gardiner, a technology analyst at Barclays Capital in London, who once dropped coverage of the company but says the firm is now back on his radar because of the laser chip business. “It’s kind of a shot in the arm for Aixtron.”

As part of its quest to reduce overhead, Aixtron is now searching for strategic partners with whom it can share the costs of development. For example, it is in the process of negotiating a joint venture agreement to produce OLEDs, which are used in those sleek new edge-to-edge mobile phone screens as well as television screens.

According to Mr. Schindelhauer, Aixtron has developed a new process that is 40 percent cheaper than the current method for producing OLEDs. An experimental OLED factory using the new process is undergoing testing.

Mr. Schindelhauer is concerned the firm might still be buffeted by political forces because it continues to produce the chip manufacturing equipment the US government objected to seeing in Chinese hands. The biggest customers for these machines are in Asia, primarily China, but Aixtron has no control over what is produced on the machines.

While CFIUS didn’t give an exact reason for blocking the sale, it was believed to be Aixtron’s expertise in growing gallium nitride, which is used in LEDs in radars, lasers and other technology that has military applications. The chips are used in the Patriot missile, among other things.

 

Martin Wocher is an editor with Handelsblatt, focusing on the mechanical engineering and steel industries. Charles Wallace is a reporter with Handelsblatt Global based in New York City. To contact the author: wocher@handelsblatt.com

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