CONFIDENTIAL — BUSINESS PROPRIETARY INFORMATION NOT FOR PUBLIC DISCLOSURE
SUPPLEMENTAL EXHIBIT — HSAG CHINA OPERATIONS SUMMARY
Submitted in Response to the First Request for Information of the Committee on Foreign Investment in the United States
CFIUS Case No. CFIUS-023-07-3841
Prepared by:
Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006
On Behalf of:
Halcyon Semiconductor Aktiengesellschaft Industriestraße 44, 01099 Dresden, Saxony, Germany
August 18, 2023
CONFIDENTIAL — BUSINESS PROPRIETARY: This document contains confidential business proprietary information of Halcyon Semiconductor Aktiengesellschaft and its subsidiaries. This document is submitted to the Committee on Foreign Investment in the United States pursuant to the provisions of Section 721 of the Defense Production Act of 1950, as amended, and 31 C.F.R. Part 800. This document and the information contained herein are exempt from public disclosure under Exemption 4 of the Freedom of Information Act, 5 U.S.C. § 552(b)(4), and Section 721(c) of the Defense Production Act, 50 U.S.C. § 4565(c). Unauthorized disclosure of this document or the information contained herein is prohibited.
This Supplemental Exhibit is submitted on behalf of Halcyon Semiconductor Aktiengesellschaft ("HSAG") in connection with the voluntary joint notice filed on July 14, 2023, pursuant to 31 C.F.R. Part 800, concerning the proposed acquisition of 100% of the outstanding equity of Marlowe Asset Management Photonics Inc. ("VPI"). This Supplemental Exhibit is provided in direct response to specific inquiries set forth in the Committee's First Request for Information, dated August 4, 2023, and is intended to furnish the Committee with a comprehensive, detailed, and accurate summary of HSAG's business activities, subsidiary operations, and commercial presence in the People's Republic of China (the "PRC" or "China").
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I. INTRODUCTION AND PURPOSE
This Supplemental Exhibit (the "Exhibit") is submitted by Calderwood & Harkness LLP, counsel to Halcyon Semiconductor Aktiengesellschaft ("HSAG"), in response to the First Request for Information ("First RFI") issued by the Committee on Foreign Investment in the United States ("CFIUS" or the "Committee") on August 4, 2023, in connection with CFIUS Case No. CFIUS-023-07-3841. The First RFI contained several specific questions directed at HSAG's business activities, subsidiary operations, commercial relationships, and regulatory interactions in the People's Republic of China. This Exhibit addresses each of those inquiries in a consolidated and comprehensive manner.
HSAG is providing this disclosure voluntarily and comprehensively to address the Committee's inquiries and to facilitate the Committee's review of the proposed transaction. HSAG recognizes the importance of full transparency with the Committee regarding the nature, scope, and scale of its operations in the PRC, and HSAG has undertaken a thorough internal review to ensure the accuracy and completeness of the information presented herein. HSAG has not withheld any material information responsive to the Committee's inquiries and stands ready to provide supplemental documentation as may be requested.
The proposed transaction that is the subject of the pending review involves the acquisition by HSAG, through its wholly owned U.S. acquisition vehicle, Halcyon US Holdings Inc., of 100% of the outstanding equity interests of Marlowe Asset Management Photonics Inc. ("VPI"), a U.S. business engaged in the design, development, and manufacture of gallium nitride ("GaN") power amplifier semiconductor devices. The joint voluntary notice concerning this proposed acquisition was filed by HSAG and VPI on July 14, 2023 (the "Joint Notice"), and was accepted by the Committee as complete on July 21, 2023. The 45-day review period under 31 C.F.R. § 800.503 is currently underway.
For broader context regarding HSAG's global corporate structure, business lines, financial performance, and strategic rationale for the proposed acquisition, the Committee is respectfully referred to Exhibit C to the Joint Notice (Business Description of Halcyon Semiconductor AG), which was filed as part of the original voluntary notice submission. The present Exhibit is intended to supplement that filing with specific and detailed information regarding HSAG's China operations, as requested by the Committee.
This Exhibit was prepared with the direct input and cooperation of HSAG's senior leadership, including Dr. Maximilian Ehrhardt, Chief Executive Officer; Katarina Brückner, Chief Financial Officer; and Stefan Lohse, LL.M., General Counsel. Each of these individuals has reviewed this Exhibit and confirmed its accuracy as to matters within their respective areas of responsibility. In addition, HSAG's Vice President of Trade Compliance, Dr. Anke Weiland, and the managing director of the Shanghai subsidiary, Wei Chen (陈伟), have provided factual input regarding trade compliance matters and local operations, respectively.
II. OVERVIEW OF HSAG GLOBAL OPERATIONS
To provide the Committee with appropriate context for HSAG's China operations, this Section presents a summary overview of HSAG's global corporate structure, financial profile, and principal business activities.
A. Corporate Identity and Registration
HSAG's full legal name is Halcyon Semiconductor Aktiengesellschaft, organized and existing as an Aktiengesellschaft (stock corporation) under the laws of the Federal Republic of Germany. HSAG's registered headquarters are located at Industriestraße 44, 01099 Dresden, Saxony, Germany. The company is registered with the Amtsgericht (local court) of Dresden under commercial register number HRB 28416. HSAG's Legal Entity Identifier (LEI) is 5299007KXQ2M4GHILZ38.
B. Public Market Information
HSAG is a publicly traded company, with its ordinary shares listed and traded on the Frankfurt Stock Exchange under the XETRA ticker symbol HLC. As of June 1, 2023, HSAG's market capitalization was approximately €14.8 billion. HSAG's shares are widely held by institutional and retail investors, with no single shareholder holding a controlling interest. HSAG's largest shareholders, as disclosed in its most recent annual report, are diversified institutional asset managers based in the European Union and the United States. No PRC government entity, state-owned enterprise, or sovereign wealth fund holds a material ownership interest in HSAG.
C. Financial Performance
For the fiscal year ended December 31, 2022 ("FY2022"), HSAG reported the following consolidated financial results:
These figures are derived from HSAG's audited consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.
D. Global Workforce and Operations
HSAG employs approximately 28,500 employees worldwide. The company's principal manufacturing facilities are located in Dresden, Germany (two 300mm wafer fabrication facilities and one 200mm legacy facility), and in Villach, Austria (one 300mm wafer fabrication facility operated through a wholly owned Austrian subsidiary). HSAG also operates backend assembly and test facilities in Malacca, Malaysia, and Batangas, Philippines, through wholly owned subsidiaries. Design centers are located in Dresden, Munich, Graz (Austria), Lund (Sweden), and Austin, Texas (United States).
E. U.S. Operations
HSAG's existing U.S. operations are conducted through Halcyon US Inc. (Employer Identification Number: 81-3056429), a Delaware corporation and wholly owned subsidiary of HSAG. Halcyon US Inc. operates a fabless semiconductor design center located at 11501 Alterra Parkway, Suite 300, Austin, TX 78758. This facility employs approximately 320 employees, all of whom are engaged in analog and mixed-signal integrated circuit design, applications engineering, and customer support activities for the U.S. market. No classified work of any kind is conducted at the Austin facility. Halcyon US Inc. does not hold any facility security clearances under the National Industrial Security Program (NISP), nor does it perform any work under classified government contracts.
The designated acquisition vehicle for the proposed transaction is Halcyon US Holdings Inc. (Employer Identification Number: 93-2841067), a Delaware corporation formed on June 5, 2023, for the sole purpose of serving as the direct parent entity of VPI following closing of the proposed acquisition. Halcyon US Holdings Inc. is registered with a registered agent at 160 Greentree Drive, Suite 101, Dover, DE 19904. As of the date of this Exhibit, Halcyon US Holdings Inc. has no employees, no revenues, and no operations other than those incidental to its formation and its role as the acquisition vehicle.
F. Core Product Lines
HSAG's semiconductor portfolio is organized into four principal product divisions:
1. Power Semiconductors: HSAG designs and manufactures a broad range of silicon-based power management devices, including MOSFETs, IGBTs, power modules, and gate drivers. These products serve automotive powertrain, industrial motor control, and renewable energy applications.
2. Analog/Mixed-Signal Integrated Circuits: HSAG produces analog and mixed-signal ICs, including operational amplifiers, data converters, voltage references, and interface ICs for industrial and automotive applications.
3. Automotive-Grade Microcontrollers: HSAG designs and manufactures 32-bit ARM-based microcontrollers qualified to AEC-Q100 standards, used in automotive body electronics, advanced driver-assistance systems (ADAS), and vehicle networking.
4. Sensor Systems: HSAG produces MEMS-based pressure sensors, inertial measurement units (IMUs), and magnetic sensors for automotive safety systems, industrial automation, and consumer electronics.
HSAG's primary end markets are automotive (approximately 52% of FY2022 revenue), industrial (approximately 28%), and consumer electronics (approximately 20%). HSAG does not produce GaN-based devices, high-electron-mobility transistor ("HEMT") components, millimeter-wave power amplifiers, or any products designed for defense radar, satellite communications, or electronic warfare applications. The proposed acquisition of VPI is intended to establish HSAG's entry into the GaN power amplifier market, which represents a new product category for HSAG.
III. HSAG CHINA SUBSIDIARY — ENTITY DETAILS
A. Legal and Corporate Structure
HSAG's sole subsidiary in the People's Republic of China is Halcyon Semiconductor (Shanghai) Co., Ltd. (Chinese name: 华尔逊半导体（上海）有限公司) (the "Shanghai Entity" or "HSAG Shanghai").
The Shanghai Entity is organized as a Wholly Foreign-Owned Enterprise ("WFOE") under the laws of the People's Republic of China, in accordance with the PRC Foreign Investment Law (effective January 1, 2020) and its predecessor statute, the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises (repealed). The Shanghai Entity was incorporated and registered with the Shanghai Administration for Market Regulation on March 22, 2011, and has been in continuous operation since that date. The entity's Unified Social Credit Code is 91310115MA1K4J0Y5B.
The Shanghai Entity's registered office is located at Suite 2208, Zhangjiang Hi-Tech Park Tower B, 399 Keyuan Road, Pudong New Area, Shanghai 201203, People's Republic of China. The entity leases approximately 14,500 square feet of office space at this location under a commercial lease agreement with a private PRC landlord. The Shanghai Entity has no other offices, facilities, or locations within the PRC.
Ownership: The Shanghai Entity is 100% owned by HSAG through a single intermediate holding company, Halcyon Semiconductor International B.V., a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) organized under the laws of the Netherlands, with its registered office in Amsterdam. Halcyon Semiconductor International B.V. is, in turn, 100% owned by HSAG. The full ownership chain is as follows:
Halcyon Semiconductor Aktiengesellschaft (Dresden, Germany) → Halcyon Semiconductor International B.V. (Amsterdam, Netherlands) — 100% owned → Halcyon Semiconductor (Shanghai) Co., Ltd. (Shanghai, PRC) — 100% owned
There are no PRC government ownership interests in the Shanghai Entity or in any entity in its ownership chain. There are no joint venture partners, no minority PRC shareholders, no PRC state-owned enterprises, and no PRC government-affiliated investment vehicles holding any direct or indirect equity interest in the Shanghai Entity or in HSAG. The Shanghai Entity is not subject to any profit-sharing, revenue-sharing, or equity-sharing arrangement with any PRC government entity.
Registered Capital and Paid-In Capital: The Shanghai Entity has a registered capital of RMB 35,000,000 (approximately USD $4.8 million at current exchange rates), which has been fully paid in. No additional capital contributions are currently planned or contemplated.
Business License Scope: The Shanghai Entity's business license, as issued by the Shanghai Administration for Market Regulation, authorizes the entity to engage in the following activities: (i) design support services for semiconductor products; (ii) sales and marketing of semiconductor products; (iii) technical applications support and consulting for consumer-grade semiconductor products; and (iv) import of semiconductor products for resale within the PRC. The business license does not authorize and the Shanghai Entity does not engage in semiconductor manufacturing, fabrication, wafer processing, device assembly, device testing, or any form of semiconductor production activity.
Employees: As of June 30, 2023, the Shanghai Entity employs approximately 89 employees, comprised of the following functional areas:
No manufacturing or fabrication operations are conducted by the Shanghai Entity. The entity does not operate, own, lease, or have access to any semiconductor fabrication facility, assembly line, test facility, or cleanroom environment in the PRC. The Shanghai Entity is, and has at all times been, exclusively a sales, marketing, and applications engineering support office.
B. Management and Governance
The legal representative and general manager of the Shanghai Entity is Wei Chen (陈伟), a PRC national who has served in this capacity since January 2019. Mr. Chen holds a Bachelor of Science degree in Electrical Engineering from Shanghai Jiao Tong University and an MBA from INSEAD. Mr. Chen reports directly to Dr. Klaus-Peter Neubauer, HSAG's Senior Vice President of Sales, Asia-Pacific, who is based at HSAG headquarters in Dresden, Germany. Dr. Neubauer, in turn, reports to HSAG's Chief Commercial Officer, Tobias Engel, a member of HSAG's Vorstand (Management Board).
The Shanghai Entity does not have a separate board of directors in the traditional sense. Under its articles of association, the Shanghai Entity is governed by a single executive director (Mr. Wei Chen), who is appointed and may be removed at any time by the sole shareholder, Halcyon Semiconductor International B.V., acting upon instruction from HSAG. All material decisions regarding the Shanghai Entity's business operations, capital expenditures, hiring, and contractual commitments exceeding RMB 500,000 require prior written approval from HSAG headquarters through the established reporting chain.
No PRC government officials, Communist Party of China ("CPC") representatives, or government-affiliated individuals serve in any management, supervisory, advisory, or governance role within the Shanghai Entity. HSAG is not aware of any CPC committee or cell operating within the Shanghai Entity, and no such body has been established or recognized by HSAG. While HSAG acknowledges that PRC law permits the establishment of CPC organizations within enterprises, HSAG is not aware of any such organization having been formally established within the Shanghai Entity, and no such organization exercises any authority over the Shanghai Entity's business operations, personnel decisions, or strategic direction.
The Shanghai Entity does not have independent research and development capability. The applications engineering team at the Shanghai Entity provides customer-facing "design-in" assistance, which consists of helping Chinese customers select appropriate standard catalog HSAG products for their applications and providing guidance on circuit board layout, thermal management, and product integration. This design-in support activity is analogous to the technical sales support provided by HSAG's sales teams worldwide and does not involve the creation of new intellectual property, the development of new semiconductor designs, or access to HSAG's proprietary design databases, process technology, or manufacturing know-how.
IV. SCOPE OF CHINA BUSINESS ACTIVITIES
A. Products Sold in China
Halcyon Semiconductor (Shanghai) Co., Ltd. sells exclusively consumer-grade power management integrated circuits ("PMICs") into the Chinese market. These products are a subset of HSAG's broader analog/mixed-signal product portfolio and represent standard, high-volume commodity semiconductor devices that are widely available in the global market from multiple competing suppliers.
The specific product types sold through the Shanghai Entity include the following:
1. Low-Voltage DC-DC Converters: Step-down (buck) and step-up (boost) switching regulators with input voltages typically ranging from 2.7V to 18V and output currents up to 6A. These devices are used in consumer electronics power supply applications, such as point-of-load regulation in smartphones, tablets, and laptop computers.
2. Linear Voltage Regulators (LDOs): Low-dropout linear regulators with output voltages from 0.8V to 5.0V and output currents up to 1.5A. These devices are used for noise-sensitive analog power supply applications in consumer audio, RF front-end modules, and sensor bias circuits.
3. Battery Management ICs: Single-cell and multi-cell lithium-ion/lithium-polymer battery charger ICs, fuel gauge ICs, and battery protection ICs designed for portable consumer electronics including smartphones, wireless earbuds, smartwatches, and tablet devices.
4. LED Driver ICs: Constant-current LED driver ICs for backlighting applications in LCD displays and general illumination. These devices support LED string voltages up to 45V and deliver constant current outputs suitable for consumer lighting applications.
All products sold in China are standard catalog parts that are available globally through HSAG's authorized distribution network. The Shanghai Entity does not sell, offer for sale, or provide technical support for any custom-designed, application-specific, military-specification ("MIL-SPEC"), or radiation-hardened semiconductor products. Every product sold through the Shanghai Entity is listed in HSAG's publicly available product catalog and is available for purchase by any qualified customer worldwide through HSAG's global distribution partners.
All products sold through the Shanghai Entity are designed and manufactured at HSAG facilities located outside of China. Specifically, the wafer fabrication for these products is performed at HSAG's 200mm fabrication facility in Dresden, Germany, and backend assembly and test operations are performed at HSAG's facilities in Malacca, Malaysia, and Batangas, Philippines. Finished, packaged, and tested devices are then shipped to China for warehousing and distribution to Chinese customers. The Shanghai Entity itself does not perform any manufacturing, fabrication, assembly, or test operations.
Critically, none of the products sold through the Shanghai Entity involve any of the following technologies:
• Gallium nitride (GaN) technology or GaN-on-silicon, GaN-on-silicon carbide, or GaN-on-sapphire substrates;
• High-electron-mobility transistor (HEMT) designs or any III-V compound semiconductor architectures (including GaAs, InP, or GaN-based devices);
• Millimeter-wave (mmWave) power amplifier architectures operating at frequencies above 6 GHz;
• Radar, electronic warfare, or electronic countermeasure components;
• Satellite communications power amplifiers or low-noise amplifiers;
• 5G infrastructure base station power amplifiers;
• Any other technology related to VPI's product lines or target markets.
No products classified under the International Traffic in Arms Regulations ("ITAR") have ever been sold, offered for sale, or technically supported through the Shanghai Entity. None of the products sold by the Shanghai Entity are defense articles or defense services within the meaning of the Arms Export Control Act or the ITAR (22 C.F.R. Parts 120–130).
Export Administration Regulations ("EAR") Classification: All products sold through the Shanghai Entity are classified as either EAR99 (not controlled) or, in limited instances, are classified under Export Control Classification Numbers ("ECCNs") that do not require a license for export, reexport, or transfer (in-country) to the PRC for the end-uses and end-users involved. Specifically:
• The vast majority of products sold through the Shanghai Entity (estimated at greater than 95% by revenue) are classified as EAR99, meaning they are subject to the EAR but are not listed on the Commerce Control List ("CCL") and do not require a license for export to the PRC absent a prohibited end-use or end-user.
• A small number of higher-performance linear voltage regulators are classified under ECCN 3A991 (other integrated circuits not controlled by ECCN 3A001), which also does not require a license for export to the PRC for the consumer end-uses and non-listed end-users involved.
• No products sold through the Shanghai Entity are classified under ECCN 3A001 (electronic devices employing controlled semiconductor materials, architectures, or performance parameters) or ECCN 3E001 (technology for the development or production of items controlled under ECCN 3A001).
No defense articles, defense services, or dual-use items requiring export licenses for China are sold through the Shanghai Entity. HSAG's trade compliance team conducts product classification reviews on an ongoing basis to ensure that all products distributed through the Shanghai Entity are properly classified and that no license requirements apply.
B. End-Use Markets and Customers
The Shanghai Entity's customer base consists exclusively of Chinese commercial and consumer electronics manufacturers. The Shanghai Entity does not sell to, and has never sold to, any military, paramilitary, intelligence, law enforcement, or internal security end-user in the PRC or elsewhere. The Shanghai Entity's customers fall into the following categories:
1. Consumer Electronics Manufacturers: Chinese OEMs and ODMs that design and manufacture smartphones, tablets, laptop computers, wireless earbuds, smartwatches, portable speakers, and other consumer devices. This category represents the Shanghai Entity's largest customer segment, accounting for approximately 45% of FY2022 revenue.
2. Smartphone OEMs: Major Chinese smartphone brands that incorporate HSAG PMICs into their handset designs. HSAG's products are used for battery charging, power rail management, and display backlighting functions in these devices.
3. White Goods and Appliance Manufacturers: Chinese manufacturers of household appliances, including refrigerators, washing machines, air conditioners, and small kitchen appliances. HSAG PMICs are used in the electronic control boards and user interface modules of these products. This category accounts for approximately 18% of FY2022 revenue.
4. Automotive Tier 1 Suppliers (Non-Defense): Chinese automotive Tier 1 suppliers that supply infotainment systems, body electronics modules, instrument clusters, and seat control modules to major automotive OEMs. All automotive applications served by the Shanghai Entity are strictly non-defense, non-military, and relate solely to commercial passenger vehicle electronics. This category accounts for approximately 15% of FY2022 revenue.
5. LED Lighting Manufacturers: Chinese LED lighting manufacturers that produce commercial and residential lighting fixtures. This category accounts for approximately 12% of FY2022 revenue.
6. Other Consumer Applications: The remaining approximately 10% of revenue is derived from sales to manufacturers of power tools, e-bikes, personal care electronics, and other miscellaneous consumer products.
No sales have been made by the Shanghai Entity to any PRC military end-user, any PRC paramilitary end-user, any PRC intelligence or security service, or any entity that the Shanghai Entity knows or has reason to know is acting as a procurement agent for any such end-user.
No sales have been made by the Shanghai Entity to any entity appearing on the following restricted-party lists:
• The U.S. Department of Commerce Bureau of Industry and Security ("BIS") Entity List (Supplement No. 4 to Part 744 of the EAR);
• The U.S. Department of the Treasury Office of Foreign Assets Control ("OFAC") Specially Designated Nationals and blocked Persons ("SDN") List;
• The BIS Military End-User ("MEU") List (Supplement No. 7 to Part 744 of the EAR);
• The BIS Unverified List (Supplement No. 6 to Part 744 of the EAR);
• The EU Consolidated List of persons, groups, and entities subject to EU financial sanctions;
• The German Federal Office of Economics and Export Control (BAFA) restricted-party lists.
HSAG maintains a robust internal trade compliance screening program that requires all Chinese customers (and all customers worldwide) to be screened against U.S., EU, and other applicable restricted-party lists prior to initial engagement and on a recurring basis thereafter. Customer screening is performed using a commercially available automated screening platform (currently the Glenrock Solutions platform) and is supplemented by manual review for any potential matches. All screening results are documented and retained in HSAG's trade compliance records. No customer of the Shanghai Entity has been identified as a restricted party, and no order has been filled where a restricted-party concern was identified.
No government contracts of any kind — whether with the PRC government, any PRC provincial or municipal government, or any other government — are performed by, or have been awarded to, the Shanghai Entity. The Shanghai Entity does not participate in any PRC government procurement programs and does not sell directly to PRC government end-users.
C. Activities NOT Conducted in China
To further assist the Committee's review, HSAG provides the following explicit confirmation that the following activities are NOT conducted by Halcyon Semiconductor (Shanghai) Co., Ltd. or by any other HSAG entity, affiliate, employee, contractor, or agent in the People's Republic of China:
1. Research and Development: No research and development of any semiconductor technology, including but not limited to circuit design, process technology development, materials science research, device physics research, or advanced packaging development, is conducted at the Shanghai Entity or at any other location in the PRC by or on behalf of HSAG.
2. Manufacturing and Fabrication: No manufacturing, fabrication, processing, packaging, assembly, or testing of semiconductor wafers, dies, or finished devices is conducted at the Shanghai Entity or at any other location in the PRC by or on behalf of HSAG. HSAG does not own, operate, lease, or have access to any semiconductor fabrication facility, cleanroom, assembly line, or test floor in the PRC.
3. GaN and III-V Compound Semiconductor Design: No design, development, characterization, or engineering of GaN-based devices, GaAs devices, InP devices, or any other III-V compound semiconductor products is conducted at the Shanghai Entity or at any other location in the PRC by or on behalf of HSAG.
4. Defense, Radar, Satellite, and 5G Infrastructure Activities: No activities related to defense systems, military radar, electronic warfare, satellite communications, or 5G infrastructure base station power amplifiers are conducted at the Shanghai Entity or at any other location in the PRC by or on behalf of HSAG.
5. ITAR-Controlled Activities: No development, production, handling, storage, or transfer of ITAR-controlled defense articles, defense services, or technical data is conducted at the Shanghai Entity or at any other location in the PRC by or on behalf of HSAG.
6. Classified Information: No access to, storage of, processing of, or transmission of any classified information — whether classified under U.S. government classification systems, German government classification systems, or any other national classification system — occurs at the Shanghai Entity or at any other location in the PRC by or on behalf of HSAG. HSAG does not hold any facility security clearances in the PRC.
7. Controlled Technology under ECCNs 3A001, 3A991, or 3E001: No activities subject to the export controls applicable to items classified under ECCN 3A001 (controlled electronic devices) or ECCN 3E001 (technology for the development or production of items controlled under ECCN 3A001) are conducted at the Shanghai Entity. While certain products classified under ECCN 3A991 are sold through the Shanghai Entity, as noted in Section IV.A above, such products do not require an export license for the PRC for the end-uses and end-users involved, and no controlled technology (as defined in the EAR) is present at the Shanghai Entity's premises.
8. Joint Research and Technology Sharing with PRC Government-Affiliated Entities: HSAG does not maintain any joint research agreements, joint development agreements, technology-sharing arrangements, cooperative research programs, or sponsored research relationships with any PRC government-affiliated research institution, PRC university, PRC national laboratory, or PRC state-owned enterprise. The Shanghai Entity has no contractual or informal relationships with any such entities involving the exchange, development, or sharing of semiconductor technology, intellectual property, or technical data.
V. FINANCIAL SUMMARY OF CHINA OPERATIONS
A. Revenue. For the fiscal year ended December 31, 2022, Halcyon Semiconductor (Shanghai) Co., Ltd. generated total revenue of $81.4 million (USD equivalent, converted from RMB at the average FY2022 USD/RMB exchange rate of approximately 6.73). This revenue represents sales of consumer-grade PMICs to Chinese commercial and consumer electronics customers, as described in Section IV above.
As a percentage of HSAG's total consolidated revenue for FY2022, the Shanghai Entity's revenue represents approximately 1.3% of the group total. HSAG's FY2022 consolidated revenue of €6.12 billion is equivalent to approximately $6.50 billion at the average FY2022 EUR/USD exchange rate of approximately 1.053, yielding a China revenue share of approximately $81.4 million / $6,500 million = 1.25%, rounded to approximately 1.3%.
The Shanghai Entity's FY2022 revenue of $81.4 million breaks down by product category as follows:
All revenue categories consist entirely of consumer-grade products. No revenue was derived from any defense-related, military, or government sale.
The following table presents the Shanghai Entity's revenue over the preceding three fiscal years, demonstrating the stability and limited scale of the operation:
The revenue growth from FY2020 to FY2022 reflects general growth in the Chinese consumer electronics market during this period, particularly in the smartphone and portable device segments, as well as a modest increase in automotive electronics demand from Chinese Tier 1 suppliers. The Shanghai Entity's share of HSAG's total consolidated revenue has remained stable at approximately 1.2% to 1.3% over this period, confirming the limited and non-strategic nature of the China operation relative to HSAG's overall business.
No revenue was derived from any government contract or defense-related sale in any of the three fiscal years presented above.
B. Profitability and Assets
The Shanghai Entity operates as a sales and applications support office and generates a modest operating profit consistent with its role as a distribution and customer support function within the HSAG group. For FY2022, the Shanghai Entity reported the following key financial metrics:
The Shanghai Entity's operating margin of 5.3% is consistent with the margins typically observed for sales and distribution subsidiaries of semiconductor companies operating in the Chinese market. The operating expenses consist primarily of employee compensation, office rent, travel, marketing, and administrative costs.
The Shanghai Entity's total assets as of December 31, 2022, were approximately $28.6 million, comprised primarily of the following:
The Shanghai Entity holds no material fixed assets. It does not own real property, manufacturing equipment, fabrication tools, or any capital equipment associated with semiconductor production. Its physical assets are limited to standard office furniture, computer equipment, and telecommunications infrastructure consistent with a sales and applications support office. The entity occupies its office premises under a commercial lease, as described in Section III.A above.
No intellectual property of any kind is registered, developed, held, or controlled by the Shanghai Entity. All intellectual property associated with HSAG's products — including circuit designs, layout artwork, process technology specifications, device models, and related know-how — is owned by and remains with HSAG in Germany (or, in limited cases, with HSAG subsidiaries in Austria or Sweden). The Shanghai Entity does not hold any patents, patent applications, registered trademarks (other than a local trademark registration for the Halcyon name and logo for use in sales activities), trade secrets, copyrights, or other forms of intellectual property. The Shanghai Entity does not have access to HSAG's proprietary design databases, process development kits, or manufacturing process technology documentation.
C. Intercompany Transactions
Products sold by the Shanghai Entity are purchased from HSAG's manufacturing subsidiaries in Germany on arm's-length intercompany terms, consistent with the Organisation for Economic Co-operation and Development ("OECD") Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The intercompany transfer pricing methodology used for products sold to the Shanghai Entity is the Transactional Net Margin Method ("TNMM"), which benchmarks the Shanghai Entity's net profit margin against comparable independent distributors in the Chinese semiconductor market. HSAG's transfer pricing policies are documented in a contemporaneous transfer pricing study prepared by an independent Big Four accounting firm and are reviewed and updated annually.
No technology transfer, licensing, or know-how agreements exist between HSAG (or any HSAG subsidiary) and the Shanghai Entity beyond the provision of standard product datasheets, applications notes, evaluation board reference designs, and technical training materials, all of which are publicly available on HSAG's corporate website and are provided to customers and distributors worldwide on a non-confidential basis. The Shanghai Entity does not receive any proprietary or controlled technical data from HSAG.
There is no reverse flow of technology or data from the Shanghai Entity to HSAG in Germany. The Shanghai Entity does not generate intellectual property, does not conduct research or development activities, and does not create technical data that would be transmitted to HSAG. Customer feedback and market intelligence gathered by the Shanghai Entity's sales and applications engineering teams is limited to commercial information (e.g., demand forecasts, competitive pricing information, customer design-in status) and does not include technical data or intellectual property.
VI. RELATIONSHIP TO THE PROPOSED TRANSACTION AND VPI
A. No Overlap with VPI's Business
HSAG confirms unequivocally that Halcyon Semiconductor (Shanghai) Co., Ltd. has no business relationship, contractual relationship, or commercial dealings of any kind with Marlowe Asset Management Photonics Inc. The Shanghai Entity has never sold products to VPI, purchased products from VPI, licensed technology to or from VPI, entered into any joint development or collaboration agreement with VPI, or had any other contractual or commercial interaction with VPI. Prior to the commencement of discussions regarding the proposed acquisition, no HSAG personnel — including personnel of the Shanghai Entity — had any business contact with VPI or its employees.
The products and target markets of VPI and the Shanghai Entity are entirely distinct and non-overlapping:
As the table above demonstrates, VPI's GaN power amplifier chips — designed for defense radar systems, military and commercial satellite communications, and 5G infrastructure base station applications — have no overlap whatsoever with the consumer-grade silicon-based PMICs sold by the Shanghai Entity. The two product lines utilize fundamentally different semiconductor materials (GaN-on-SiC versus silicon), different device architectures (HEMTs versus MOSFETs and bipolar transistors), different manufacturing processes (III-V compound semiconductor epitaxy versus silicon CMOS and BCD processes), and serve entirely different end markets.
VPI does not sell to, and does not source from, any entity in the PRC. VPI's customer base consists exclusively of U.S. Department of Defense prime contractors, U.S. Intelligence community agencies, allied foreign military customers (under approved Foreign Military Sales or Direct Commercial Sales channels), and selected commercial satellite communications operators, all of which are located in the United States or in allied countries. VPI does not have, and has never had, any sales, distribution, manufacturing, or sourcing relationship in the PRC.
Post-closing, HSAG does not intend to transfer, license, or make available any VPI technology, intellectual property, technical data, or products to or through the Shanghai Entity. HSAG's strategic rationale for the proposed acquisition, as described in detail in the Joint Notice, is to expand HSAG's product portfolio into the GaN power amplifier market to serve defense, SATCOM, and 5G infrastructure customers in the United States and allied countries. HSAG has no plan, intention, or commercial rationale to distribute VPI's products in the PRC market, and any such distribution would be prohibited under applicable ITAR and EAR export controls in any event.
HSAG further confirms that there is no plan or intention to integrate VPI's product lines, technical data, design tools, manufacturing processes, or personnel with the Shanghai Entity's operations in any manner whatsoever. VPI will continue to operate as a standalone U.S. business entity, as described in the proposed mitigation framework submitted with the Joint Notice.
B. Post-Closing Segregation Commitments
HSAG commits to the Committee that, following the closing of the proposed acquisition, VPI will have no operational, information technology ("IT"), data, or personnel connections to Halcyon Semiconductor (Shanghai) Co., Ltd. HSAG offers the following specific commitments regarding the post-closing separation of VPI from HSAG's China operations:
1. IT Segregation: VPI's IT systems — including all servers, workstations, storage systems, network infrastructure, email systems, collaboration platforms, and cloud computing resources — will be physically and logically separated from HSAG's global IT network, including any systems that are accessible from or connected to the Shanghai Entity's office. VPI will maintain its own independent IT infrastructure, managed by cleared U.S.-person IT administrators, with no network connectivity to any HSAG system outside of the United States. A dedicated firewall and access control architecture will ensure that no data traffic passes between VPI's IT environment and any HSAG system accessible from the PRC.
2. Data Segregation: No VPI data — whether classified, controlled unclassified information ("CUI"), ITAR-controlled technical data, EAR-controlled technology, proprietary trade secrets, or unclassified business information — will be stored on, processed by, transmitted through, or accessible from any HSAG system in China. All VPI data will reside exclusively on VPI's U.S.-based IT infrastructure, and access to such data will be restricted to authorized VPI personnel and, where applicable, appropriately cleared and authorized HSAG personnel located in the United States who have been granted access under the terms of the Technology Control Plan.
3. Personnel Segregation: No employees, contractors, or agents of the Shanghai Entity will have access to VPI facilities, VPI personnel, VPI IT systems, VPI technical data, VPI intellectual property, or any information relating to VPI's products, customers, or programs. No VPI employees will report to, take direction from, or share information with any personnel of the Shanghai Entity. No personnel transfers between VPI and the Shanghai Entity will occur.
4. Physical Access Controls: No personnel of the Shanghai Entity will be granted physical access to any VPI facility, including VPI's semiconductor fabrication facility in Albuquerque, New Mexico, or VPI's design center in Richardson, Texas. All VPI facilities will maintain physical access control systems that restrict entry to authorized VPI personnel and approved visitors in accordance with the facility security requirements of the National Industrial Security Program.
5. Consistency with Mitigation Framework: The commitments described above are consistent with, and in many cases exceed, the data segregation, Technology Control Plan ("TCP"), cybersecurity, and governance provisions that HSAG has proposed as part of its comprehensive mitigation framework, as set forth in Exhibit G to the Joint Notice (Proposed Mitigation Measures). HSAG is prepared to formalize these commitments in a National Security Agreement ("NSA") or other binding instrument, as the Committee may determine appropriate.
VII. PRC REGULATORY AND GOVERNMENT RELATIONS
A. PRC Government Interactions
The Shanghai Entity is subject to standard PRC regulatory requirements applicable to wholly foreign-owned enterprises operating in the PRC, including requirements related to business registration, corporate income tax, value-added tax, individual income tax withholding, labor and employment law, social insurance contributions, and compliance with PRC data protection legislation, including the PRC Personal Information Protection Law ("PIPL") and the PRC Data Security Law ("DSL"). The Shanghai Entity has complied with all applicable PRC regulatory requirements at all times and is in good regulatory standing.
HSAG has not received any requests from PRC government authorities — including any ministry, commission, bureau, military organ, intelligence service, security service, or any entity affiliated with any of the foregoing — for access to HSAG or VPI technology, data, intellectual property, technical data, trade secrets, or business information. No PRC government entity has sought to compel, request, or induce HSAG or any HSAG subsidiary to provide access to non-China operations, including VPI or any other HSAG subsidiary outside of the PRC.
HSAG has no obligations under PRC law that would require it to provide PRC government authorities with access to its non-China operations, including VPI. HSAG has obtained advice from qualified PRC counsel (Castellane & Reyes LLP, Shanghai office) confirming that the Shanghai Entity's legal obligations under PRC law are limited to the entity's operations within the PRC and do not extend to HSAG's global operations or to VPI. While HSAG is aware that certain PRC laws — including the PRC National intelligence Law and the PRC Counter-Espionage Law — contain broadly worded provisions that have been the subject of commentary, HSAG's PRC counsel has advised that these provisions have not been applied to compel foreign-owned enterprises to disclose technology, intellectual property, or data held outside of the PRC, and that the Shanghai Entity's limited scope of operations (sales and support of consumer-grade PMICs) does not involve activities that would fall within the scope of these laws. Nevertheless, HSAG has proposed, as part of its mitigation framework, robust IT and data segregation measures that would prevent any access from the Shanghai Entity's systems to VPI data, regardless of any theoretical legal obligation.
HSAG does not participate in any PRC government-sponsored semiconductor development programs, including the "Made in China 2025" national strategic plan or any of its semiconductor-related sub-plans, the National Integrated Circuit Industry Investment Fund (the "Big Fund") or any successor fund, or any provincial or municipal semiconductor industry development programs. HSAG has not received any grants, subsidies, tax incentives (beyond standard foreign-invested enterprise tax treatment), equity investments, or other financial support from any PRC government entity or PRC government-affiliated investment vehicle in connection with its China operations.
No PRC government entity holds any ownership stake, board seat, or governance role in HSAG or in any of its subsidiaries worldwide, including the Shanghai Entity. HSAG's shareholder register, as maintained by its registrar in Germany, does not reflect any PRC government-owned or PRC government-affiliated entity as a registered shareholder. While HSAG's shares are publicly traded on the Frankfurt Stock Exchange and HSAG cannot rule out that PRC entities may hold immaterial positions through nominee accounts, HSAG is not aware of any PRC government-affiliated entity holding a material position in HSAG's equity, and no such entity has disclosed a holding that would require notification under German securities law.
B. PRC Data and Cybersecurity Law Compliance
The Shanghai Entity's IT systems are localized to the China office and are designed to handle only the data necessary for the entity's sales and customer support functions. Specifically, the Shanghai Entity's IT environment consists of a local area network at the Shanghai office, local file servers, workstations for employees, and access to HSAG's global customer relationship management ("CRM") system and enterprise resource planning ("ERP") system. Access to HSAG's CRM and ERP systems from the Shanghai office is restricted to the sales and financial data relevant to the Shanghai Entity's Chinese consumer customer accounts. The Shanghai Entity's personnel do not have access to HSAG's global R&D systems, product design databases, process development environments, manufacturing execution systems, or any other systems containing proprietary technical data or intellectual property.
No HSAG global R&D data, design data, process technology data, or sensitive corporate information is stored on or accessible from the Shanghai Entity's IT systems. The Shanghai Entity's systems contain only: (i) sales and marketing data related to Chinese consumer customer accounts; (ii) publicly available product datasheets and applications notes; (iii) financial and accounting records of the Shanghai Entity; (iv) HR and payroll data for Shanghai Entity employees; and (v) general administrative correspondence.
The Shanghai Entity does not process, store, or transmit any U.S.-origin controlled technical data, including ITAR-controlled technical data, EAR-controlled technology, or controlled unclassified information ("CUI"). No U.S.-origin controlled items, technology, or software are present on the Shanghai Entity's IT systems or at the Shanghai Entity's physical premises.
VIII. EXPORT COMPLIANCE AND SANCTIONS
HSAG maintains a comprehensive global trade compliance program that is overseen by HSAG's Vice President of Trade Compliance, Dr. Anke Weiland, who reports directly to HSAG's General Counsel, Stefan Lohse, LL.M. The trade compliance program is headquartered at HSAG's Dresden offices and is supported by a team of 14 full-time trade compliance professionals located in Dresden, Austin (Texas), and Singapore. The program covers all aspects of export controls, sanctions, anti-boycott regulations, and customs compliance across HSAG's global operations.
The Shanghai Entity operates under HSAG's trade compliance policies and procedures, which include the following controls relevant to the China operations:
1. Restricted-Party Screening: All customers, end-users, intermediaries, and other counterparties of the Shanghai Entity are screened against the following restricted-party lists prior to initial engagement and on a recurring quarterly basis: the U.S. BIS Entity List (Supplement No. 4 to Part 744 of the EAR); the U.S. BIS Military End-User List (Supplement No. 7 to Part 744 of the EAR); the U.S. BIS Unverified List (Supplement No. 6 to Part 744 of the EAR); the OFAC SDN List; the OFAC Sectoral Sanctions Identifications (SSI) List; the EU Consolidated List; the German BAFA lists; and other applicable national sanctions and restricted-party lists. Screening is performed using the Glenrock Solutions automated screening platform and is supplemented by manual review of any potential matches.
2. End-Use and End-User Controls: The Shanghai Entity's sales personnel are trained to identify and report any red flags indicative of potential military end-use, proliferation-related end-use, or diversion to restricted end-users. HSAG's trade compliance team reviews all new customer engagements and, where warranted, requires end-use certificates or statements prior to shipment.
3. Product Classification: All products distributed through the Shanghai Entity are classified under the EAR by HSAG's trade compliance team. Product classifications are documented in HSAG's product classification database and are reviewed annually or upon any change in product specifications.
4. Training: All employees of the Shanghai Entity with sales, applications engineering, or logistics responsibilities receive annual trade compliance training covering U.S. export controls (EAR), U.S. sanctions (OFAC), EU export controls, and HSAG's internal compliance policies.
HSAG has not been the subject of any enforcement action, civil penalty, criminal penalty, voluntary self-disclosure ("VSD"), or formal investigation by the Bureau of Industry and Security, the Directorate of Defense Trade Controls, the Office of Foreign Assets Control, or any comparable EU or German authority in connection with its China operations or any other aspect of its global operations. HSAG has not filed any VSDs with BIS or OFAC. HSAG has not received any warning letters, penalty notices, or administrative subpoenas from any U.S. or EU export control or sanctions authority.
No deemed export issues exist at the Shanghai Entity, as no controlled technology (as defined in the EAR or ITAR) is present at, generated by, or accessible from the Shanghai Entity. The Shanghai Entity does not employ any foreign nationals who would require deemed export licenses under the EAR, as no controlled technology is released to any employee of the Shanghai Entity.
HSAG's information security management system is certified under ISO/IEC 27001:2013 by Aoki Reyes CPAs LLP, with the certification scope covering HSAG's global IT infrastructure, including the Shanghai Entity's IT systems. As referenced in the separately submitted supplemental exhibit entitled "HSAG Cybersecurity Program Overview" (submitted concurrently with this Exhibit), HSAG's cybersecurity framework includes specific controls applicable to the Shanghai Entity designed to prevent unauthorized access from the Shanghai Entity's systems to HSAG's broader IT infrastructure, including segmented network architecture, role-based access controls, multi-factor authentication, and continuous monitoring of network traffic between the Shanghai Entity's local network and HSAG's global systems. These controls are subject to annual internal audit and periodic external audit by HSAG's ISO 27001 certification body.
IX. CERTIFICATIONS AND REPRESENTATIONS
HSAG hereby certifies, through its undersigned counsel, that the information provided in this Supplemental Exhibit is, to the best of HSAG's knowledge and belief after reasonable inquiry, true, accurate, and complete in all material respects. HSAG has made a good-faith effort to provide the Committee with a comprehensive and transparent account of its China operations in response to the Committee's First RFI.
In preparing this disclosure, HSAG has conducted a thorough internal review of its China operations, including:
(a) a review of the Shanghai Entity's corporate registration documents, business license, and articles of association;
(b) interviews with the Shanghai Entity's general manager, Wei Chen, and key members of the Shanghai Entity's sales, applications engineering, and finance teams;
(c) a review of the Shanghai Entity's audited financial statements for FY2020, FY2021, and FY2022, prepared in accordance with PRC Generally Accepted Accounting Principles;
(d) a review of HSAG's intercompany agreements with the Shanghai Entity, including product supply agreements and transfer pricing documentation;
(e) a review of the Shanghai Entity's IT architecture and network configuration, conducted in consultation with HSAG's Chief Information Security Officer, Dr. Thomas Krause;
(f) a review of HSAG's trade compliance records pertaining to the Shanghai Entity, including customer screening logs, product classification records, and compliance training records; and
(g) consultations with HSAG's PRC counsel, Castellane & Reyes LLP, regarding the Shanghai Entity's regulatory obligations under PRC law.
HSAG stands ready to provide additional information or documentation to the Committee upon request, including but not limited to:
• Audited financial statements of Halcyon Semiconductor (Shanghai) Co., Ltd. for FY2020, FY2021, and FY2022;
• Complete employee rosters for the Shanghai Entity, including titles, job functions, and reporting relationships;
• Customer lists for the Shanghai Entity (subject to appropriate confidentiality protections, as certain customer identities constitute commercially sensitive information);
• IT architecture diagrams for the Shanghai Entity's local network and its connections to HSAG's global IT infrastructure;
• Copies of the Shanghai Entity's business license and articles of association (with certified English translations);
• Intercompany agreements between HSAG and the Shanghai Entity;
• Transfer pricing documentation for FY2020, FY2021, and FY2022; and
• Trade compliance training records and customer screening logs.
The Committee is respectfully referred to the certification of Dr. Maximilian Ehrhardt, Chief Executive Officer of HSAG, previously filed under 31 C.F.R. § 800.502 in connection with the Joint Voluntary Notice on July 14, 2023, in which Dr. Ehrhardt certified the accuracy and completeness of the information submitted in the Joint Notice and all accompanying exhibits. The representations made in this Supplemental Exhibit are consistent with and supplementary to that certification.
X. CONCLUSION
In summary, HSAG's operations in the People's Republic of China, conducted exclusively through Halcyon Semiconductor (Shanghai) Co., Ltd., are limited in scope, scale, and strategic significance and present no national security concerns in connection with the proposed acquisition of Marlowe Asset Management Photonics Inc. The key characteristics of HSAG's China operations may be summarized as follows:
• Limited Scope: The Shanghai Entity is a sales and applications support office only. It does not conduct research and development, manufacturing, fabrication, assembly, testing, or any other semiconductor production activity.
• Consumer-Grade Products Only: The Shanghai Entity sells exclusively consumer-grade power management ICs (DC-DC converters, LDOs, battery management ICs, and LED driver ICs). No GaN technology, no III-V compound semiconductor products, no defense-related components, and no dual-use items requiring export licenses for the PRC are sold through the entity.
• Limited Scale: The Shanghai Entity generated $81.4 million in revenue in FY2022, representing approximately 1.3% of HSAG's total consolidated revenue. The entity employs approximately 89 people and holds total assets of approximately $28.6 million, consisting primarily of receivables and working capital.
• No Connection to VPI: The Shanghai Entity has no business relationship, contractual relationship, or commercial dealings with VPI. VPI's GaN power amplifier products have no overlap with the consumer PMICs sold by the Shanghai Entity. Post-closing, VPI will be completely segregated from the Shanghai Entity in all respects — operational, IT, data, and personnel.
• No Defense or Government Sales: The Shanghai Entity does not sell to any PRC military, paramilitary, intelligence, or security end-users. No government contracts are performed by the Shanghai Entity. No customers of the Shanghai Entity appear on U.S. or EU restricted-party lists.
• No Controlled Technology in China: No ITAR-controlled, EAR-controlled, or classified technology is present at, generated by, or accessible from the Shanghai Entity. No VPI data or technology will be stored on, processed by, or accessible from any HSAG system in China post-closing.
• No PRC Government Involvement: No PRC government entity holds any ownership stake, board seat, or governance role in HSAG or any of its subsidiaries. HSAG does not participate in PRC government semiconductor development programs.
HSAG's China presence, properly understood, does not give rise to national security concerns in connection with the proposed acquisition of VPI. The Shanghai Entity's consumer PMIC sales operation is entirely separate from and unrelated to VPI's defense-focused GaN power amplifier business, and HSAG has proposed — and is committed to implementing — robust mitigation measures to ensure that this separation is maintained and enforced post-closing.
HSAG remains committed to working constructively and transparently with the Committee throughout the review process. HSAG is prepared to implement the comprehensive mitigation framework described in the Joint Notice, including the proposed Technology Control Plan, data segregation measures, cybersecurity provisions, board governance protections, and Government Security Committee structure, to ensure the complete and permanent separation of VPI from HSAG's China operations following closing of the proposed acquisition. HSAG believes that these measures, taken together, will fully address any concerns the Committee may have regarding HSAG's limited China presence.
For further inquiries regarding this Supplemental Exhibit or HSAG's China operations, please contact:
Margaret "Peggy" Ashworth Of Counsel Calderwood & Harkness LLP 1750 K Street NW, Suite 800 Washington, DC 20006 Tel: (202) 555-7140
Email: mashworth@calderwoodharkness.com
Beatrice Holloway Partner Calderwood & Harkness LLP 399 Park Avenue, 31st Floor New York, NY 10022 Tel: (212) 555-3920
Email: bholloway@calderwoodharkness.com
APPENDICES
APPENDIX 1 — CORPORATE STRUCTURE CHART: HSAG CHINA SUBSIDIARY