The Economist - UK (2019-06-29)

The EconomistJune 29th 2019 Business 65

I

n 2000 chinahad two supercomputers

ranked among the world’s fastest 500.

Ten years later a machine named Tianhe-1a

topped the global league table. It was,

though, based on Intel chips. So when in

2015 America barred its giant chipmaker

from selling to four Chinese supercompu-

ter labs—fearing that the machines were

being used to simulate nuclear blasts—it

might have expected China’s progress in

the field to slow. Instead, China unveiled

another supercomputer, Sunway Taihu-

Light, that led that ranking in 2016 and

2017—this time powered entirely by home-

grown microprocessors. The latest Ameri-

can sanctions will nevertheless bite.

On June 21st America’s Commerce De-

partment blacklisted another five Chinese

supercomputing entities on the grounds

that they too pose a threat to national secu-

rity. The export ban prohibits American

firms from selling them chips and “inter-

connects” that allow chips to talk to each

other. An army-led institute that designed

chips for the latest world-beating machine

is on the list, as is Sugon, which has built a

third of China’s 100 fastest ones.

So is Hygon, born of a joint venture in

2016 between Sugon and Advanced Micro

Devices (amd), an American semiconduc-

tor firm. Intel chips dominate high-pow-

ered computing in desktops, servers and

supercomputers. But amdmakes advanced

ones compatible with Intel’s technology.

The $293m arrangement gave Hygon the

ability to make slightly slower near-repli-

cas of amd’s designs—and China a domes-

tic manufacturer of crucial components.

The latest ban chokes off practically all

of amd’s dealings with Hygon. Transfer of

intellectual property and technical support

are proscribed. The manufacturer of the

copycat chips, GlobalFoundries, is Ameri-

can, so it too is banned from working with

Hygon. Finding an alternative foundry

would require onerous tweaks to the chips’

design. amdhas carefully transferred only

as much knowledge as Hygon needs to

copy but not reverse-engineer them.

A blow, for sure—but perhaps not a

knockout. Last year new American com-

puters ended China’s dominance; it will be

pouring money into reclaiming it. Jack

Dongarra, a supercomputing expert at the

University of Tennessee who has scruti-

nised Sunway’s chip, calls it “very impres-

sive”. Rumours have spread of a big new su-

percomputer powered by amd’s licensed

chipswhirringina Chineselab.

ToChinatheblacklisting,daysbefore

PresidentDonaldTrumpistomeethisChi-

nesecounterpart,Xi Jinping,attheg 20

summitinJapan,smacksofa negotiating

ployinthetwocountries’tradewar.InMay

MrTrumpsaidhecouldeaseexportrestric-

tionsthathad beenplacedtheprevious

weekonHuawei,a Chinesetelecomsgiant.

Evenif hedoesn’t,IntelandMicron,anoth-

erchipmaker,arealreadycircumventing

theHuaweibaninwaystheyclaimarele-

gal,accordingtotheNewYorkTimes. FedEx

issuing America’sgovernment overthe

“impossible”jobofinspectingparcelsto

blacklistedChinesefirms.Chippingaway

atChinesecomputingprogressistough. 7

SHANGHAI

An American ban hits at the core of

China’s supercomputer industry

Chinese technology

The balance of

processing power

Notsofast

F

or a manwho apparently likes to keep a

low profile, Daniel Kretinsky makes a lot

of headlines. In March journalists of Le

Monde battled to prevent the inscrutable

Czech oligarch from taking control of the

prestigious French daily. On June 23rd the

management of Metro, a German retail be-

hemoth based in Düsseldorf, rejected a

€5.8bn ($6.6bn) takeover offer from ep Glo-

bal Commerce, an investment vehicle con-

trolled by Mr Kretinsky and Patrik Tkac, his

Slovak business partner, arguing that it

“substantially undervalues” the company.

The offer of €16 a share is a measly 3% above

the previous closing price on June 21st.

In a statementep Global Commerce said

it has the “full support” of the Haniel fam-

ily, an important shareholder, and that it

holds call options for 9% of Metro shares

owned by Ceconomy, a consumer-elec-

tronics business that used to be part of the

group. One of Germany’s oldest industrial

clans, the Haniels owned a big chunk of

Metro for more than half a century.

After years of poor returns, the Haniels

decided last August to cut their losses by

selling 7.3% of Metro to Messrs Kretinsky

and Tkac. They also gave the duo an option

to buy the family’s remaining 15.2% stake.

Metro has two other big shareholders: the

Meridian Stiftung, which owns 14.2% of

shares, and the Beisheim Holding, which

holds 6.6%. Meridian reportedly said it will

not sell; Beisheim has not yet announced

its decision.

What does the Francophile Mr Kretin-

sky, who made his money in the energy in-

dustry, want with a struggling German re-

tailer? According to Bruno Monteyne at ab

Bernstein, a research firm, he saw an op-

portunity to buy—on the cheap and with

outside finance—a retailer still in the pro-

cess of transformation. Metro was once a

retail conglomerate with activities stretch-

ing from consumer electronics to depart-

ment stores. Under Olaf Koch, its chief ex-

ecutive, it has been shedding businesses to

focus on food wholesalers. Mr Koch is not

done. He is about to sell Real, a loss-making

chain of hypermarkets, as well as Metro’s

China business. epGlobal Commerce says

it backs the decision to flog these business-

es provided Mr Koch can get a good price.

Messrs Kretinsky and Tkac have four

weeks to submit their offer to German reg-

ulators and Metro’s board. They can either

stick to their stingy bid or increase it in the

hope of winning over Meridian and other

shareholders. ep Global Commerce will

only buy the rest of the Haniel shares if this

gets it across a threshold of 75% of votes at

the annual meeting. This would trigger a

“domination agreement” that lets it exer-

cise full control of the group’s cashflow

without owning 100% of the company.

If they fail, Metro will have two large,

unhappy shareholders: the eastern Euro-

peans, with 7.3% plus options to buy Ceco-

nomy’s 9%, and the Haniels, with 15.2%. Mr

Koch may struggle to find a taker for their

stakes at a time when traditional retail is

threatened by e-commerce. Metro’s annual

sales of €36bn remain hefty. But they are in

decline, as are profits. A counter-bid could

come from farther east—an Asian buyer in-

terested in more than Metro’s Chinese arm.

If it does, Mr Kretinsky and Mr Tkac may

walk away with a profit. If it doesn’t, they

will own one of the world’s top ten retail-

ers.Eitherway,expectmoreheadlines. 7

BERLIN

A German retailer is fighting for its

independence

The battle for Metro

From Prague, with

cash

Correction:In “Flying start” ( June 15th) we said that

drones run by UPS are replacing some delivery cars

in North Carolina. In fact, the drones move medical

supplies at a hospital campus in addition to a

courier service that is not operated by UPS. Sorry.