Chinese supercomputer maker Sugon and chip developer Hygon call off merger plans

Chinese supercomputer maker Sugon and chip designer Hygon Information Technology have called off a planned mega-merger that had been under discussion for months, in a surprise move that could complicate the country’s tech self-sufficiency efforts in the semiconductor and high-performance computing sectors.\nThe two Shanghai-listed companies late on Tuesday said they cancelled merger talks because “the market environment has changed significantly since the initial planning stages of this transaction”. They added that “the conditions for implementing this major asset restructuring are not yet mature”.\nDuring an online briefing with investors on Wednesday, Sugon and Hygon said the market changes referred to fluctuations in both companies’ share prices over the past few months.\nThey said the factors which affected their respective stocks included “changes in the domestic and international environment, the overall trend of the mainland share market, changes in the artificial intelligence industry’s popularity and market expectations”.\n“By not merging, Hygon can operate as an independent chip supplier, providing core computing chips to the entire domestic server industry,” said Li Jun, general manager at Beijing-based Sugon, which is listed as Dawning Information Industry Co.\n“Sugon, on the other hand, can collaborate with other chip companies as a server manufacturer,” he added.\n\nThe aborted merger has dashed industry expectations that Sugon and Hygon would create a major domestic ecosystem covering advanced processors and high-performance servers.\nThe proposed merger, which was announced in late May, was expected to have a total transaction value of 116 billion yuan (US$16.4 billion), according to corporate announcements in June.\nAmid broad investor confidence in AI-related stocks in China, Sugon’s shares had gained more than 45 per cent since the deal was announced, while Hygon’s stock surged 60 per cent during the same period.\nSugon’s shares plunged by the daily limit of 10 per cent in Shanghai on Wednesday amid investors’ reaction to the abandoned merger. Hygon’s stock slid 0.4 per cent.\nThe companies, meanwhile, sought to reassure investors that their ties remain intact. Sugon was already Hygon’s largest shareholder. They promised to maintain tight supply chain cooperation.\nFounded in 2014, Hygon designs central processing units and so-called deep computing units – accelerator cards specifically designed for AI and deep learning applications.\nThe company is seen as an important player in the country’s push for semiconductor self-sufficiency, as some analysts have suggested its products could serve as an alternative to Nvidia’s AI chips. After getting the go-ahead from Washington, Nvidia is expected to start shipping its H200 chips to China.\nBacked by the Chinese Academy of Sciences, Sugon is China’s leading maker of supercomputers and was responsible for vaulting the country into the ranks of the world’s leading suppliers of high-performance computing systems, according to its website.\nThe US government added Sugon to its Entity List in 2019, along with the firm’s three affiliates. Being blacklisted restricted the firm’s access to advanced chips from US suppliers including Intel, Nvidia and Advanced Micro Devices.\n