Troubles under the sea and in the cloud

Hello, this is Kenji in Hong Kong.

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

Speaking at a hotel in downtown Hong Kong, the management, including chair and chief executive Yang Yuanqing, tried to focus on positives: revenue and profit growth in its two non-PC segments, and the prospect of an early recovery in its core PC business, which suffered from weak demand and excess inventory.

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

But job cuts like these are just one headache for the tech sector. Politics are another. A key takeaway of the recent G7 summit in Hiroshima was the display of 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 directly objected to the G7 chair Japan, and vice foreign minister Sun Weidong summoned Japan’s ambassador Hideo Tarumi to Beijing on Sunday to express his country’s “strong dissatisfaction and resolute opposition” to the statements. Tarumi hit back by saying the G7 response was “only natural” and it is China that needs to change its 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 straightforward endeavour: building and improving the undersea cables needed to keep the internet connected.

High-tension cables

Multimillion-dollar undersea cable projects have become the latest focal point of geopolitical tensions in Asia as China intensifies its highly contested claims over the South China Sea, writes Nikkei Asia’s Singapore correspondent Tsubasa Suruga.

These cables are crucial for keeping information flowing throughout the region and across the Pacific. Most countries require builders to get approval if they plan to lay cables in their territorial waters, but not in their exclusive economic zones, which extend 200 nautical miles out 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 nonobjection letter must be obtained from China’s People’s Liberation Army before the formal application process can even begin. Beijing imposes the policy even though an international tribunal found in 2016 that the nine-dash line lacked a legal basis.

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

Some of the companies involved, like Singtel, are looking for ways to diversify their routes. Tay Yang Hwee, a 30-year industry veteran who heads subsea cable development at the Singaporean telecom provider, said it is “exploring alternate paths” for connecting data hubs, but he admits it is “very difficult” to avoid the South China Sea as a whole.

Minding the curbs

China’s semiconductor industry fears Japanese curbs on exports of chipmaking equipment will be so expansive that they risk hitting its production of lower-grade silicon used in everything from cars to washing machines, write the Financial Times’ Qianer Liu, Kana Inagaki and Anna Gross.

Tokyo intends to limit exports of 23 types of chipmaking equipment from July, as it aligns itself with the US and Netherlands in tightening controls that could limit China’s access to cutting-edge chips. Chinese foundries rely on imported chipmaking tools from the US and Japan.

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

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

The planned regulation indicates that even immersion lithography provided by Nikon used to make chips at 45nm could potentially be restricted from being sold to China because some of the technology can be essential in producing 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 the Micron ban and upset the US, or refrain from doing so and irk China, according to Kim Jaewon, Lauly Li and Cheng Ting-Fang, Nikkei Asia’s tech reporters 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 are unlikely to do so given their reliance on US chip-producing 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 thanks to special permission from Washington — which could be revoked at some point.

Cloudy weather

Alibaba’s cloud arm is slashing about 1,000 employees, or 7 per cent of its workforce, as it prepares for a spin-off and an 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 up into six major business groups, with the cloud arm being one of them.

Like its peers, Alibaba has been forced to cut costs and trim headcount recently. Last year it cut almost 20,000 jobs, and a further 4,500 employees left during the first three months of the year, leaving it with a total headcount of 235,216 as of the end of March.

Alibaba is the largest provider of public cloud services in China and the business is its second-biggest income source after ecommerce. But renewed competition from rivals such as Huawei and the country’s three telecom operators have forced it to slash prices.

Suggested reads

1. Vietnam shrimp sector adopts tech in quest for clean supply chain (Nikkei Asia)

2. South Korea warns US could ‘overburden’ its chipmakers with China limits (FT)

3. Hong Kong greenlights retail trading of cryptocurrency (Nikkei Asia)

4. Chip wars with China risk damage to US tech, says Nvidia chief (FT)

5. Malaysia’s rapid 5G adoption highlights cyber vulnerabilities (Nikkei Asia)

6. China’s flying car developers get ready for take-off in 2025 (Nikkei Asia)

7. Embracer’s shares plummet after $2bn partnership deal evaporates (FT)

8. Japan’s Fugaku supercomputer to help develop homegrown generative AI (Nikkei Asia)

9. SoftBank’s debt rating cut deeper into junk status (FT)

10. TikTok reshapes ecommerce unit in bid to crack western markets (FT)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at techasia@nex.nikkei.co.jp