Sai Microelectronics: Special export license application rejected by Swedish Strategic Product Inspection Agency ISP

Recently, Saiwei Electronics confirmed and announced that its holding subsidiary Silex Microsystems AB (Sweden Silex) has received a formal decision from the Swedish Inspectorate of Strategic Products (hereinafter referred to as ISP) and confirmed by the Swedish Silex management and ISP on-site meeting, the Swedish application submitted by Silex to the Swedish ISP in November 2020 for a license to export technologies and products related to the official production and manufacture of the first batch of MEMS products to the company's holding subsidiary, Selex Microsystems Technology (Beijing) Co., Ltd. (Selex Beijing), was rejected by the Swedish ISP. That is, Sweden's ISP prevented Sweden's Silex from continuing the following transactions with Selex Beijing:(1) exporting technologies, software and products related to MEMS manufacturing, development, testing or analysis equipment, which can be used to develop and manufacture MEMS products;(2) Export MEMS infrared microbolometer, MEMS accelerometer, MEMS gyroscope and related technologies. And in the above-mentioned decision document, the Swedish ISP held that the Swedish Silex could not appeal the decision under the relevant provisions of section 25 of the Swedish Dual-Use Goods and Technical Assistance Control Act.

According to the formal decision and the contents of the on-site meeting, Sweden Silex is unable to continue to perform the Technical Service Agreement and the License Agreement signed between Sweden

Silex Beijing in 2018 due to external force majeure, I .e. the suspension of technical cooperation between the two parties will continue from the fourth quarter of 2020. The 8-inch MEMS production line in Selex Beijing needs to continue to explore relevant production know-how independently, and it may take more time and cost to realize process maturity. The expansion of foundry MEMS wafer category will continue to rely on itself and cannot be accelerated through the technical support of Sweden's Silex. For Sweden's Silex's original mainland Chinese customers, its planned transfer to Selex Beijing may also slow down. Silex's global MEMS process development and wafer manufacturing operations are not affected by the Swedish ISP's decision.

In October 2020, the Swedish ISP made a decision that the transaction between the Swedish Silex and Selex Beijing would require an export license from it.

In November 2020, an application was submitted to the Swedish ISP for a license to export technologies and products related to the official production and manufacture of the first batch of MEMS products to Serex Beijing, and a Swedish law firm of Setterwalls was engaged to evaluate the ISP's decision and related legal risks.

In January 2021, the Setterwalls issued a legal opinion stating that there was a low risk that the Swedish ISP would prevent the Swedish Silex from exporting its products and technology to Serex Beijing. However, considering the complex international political environment, the relevant laws and regulations on the export of dual-use items in Sweden and the European Union, as well as how the Swedish National Security Protection Act and its amendments are interpreted and applied in practice are not completely certain. There is a risk that companies introducing technology from Silex in Sweden will not be granted an export license.

During this period, the company and the management of Sweden

Silex have been working hard to communicate with relevant departments of the Swedish government, stating that when Sweden Silex and Silex Beijing signed the Technical Service Agreement and the License Agreement in 2018, there were no Swedish laws and regulations restricting this or Swedish government departments require review or restriction, and the relevant agreement text conforms to local laws and regulations, moreover, the MEMS business of Cerex Beijing will not be used for military purposes or pose risks to public safety/human rights. It is hoped that the normal technical and commercial cooperation between the two parties can be treated fairly and impartially by the Swedish government. After about a year of evaluation and communication, the Swedish ISP still made a decision to reject the above-mentioned export license application.

The company deeply regrets this decision. The company solemnly declares that the company has been isolated from the original navigation and avionics business since the start of the semiconductor business, and up to now the company has completely divested the avionics and inertial navigation business, the company's business does not involve military purposes, will not pose a risk to public safety

/human rights, the business activities of the company and its subsidiaries at home and abroad strictly abide by the laws and regulations of the relevant countries and regions involved.

Since the technical cooperation between Sweden Silex and Selex Beijing has been suspended since the fourth quarter of

2020, the production and operation activities of the two holding subsidiaries are carried out normally. The company believes that this matter has no significant adverse impact on the company's short-term operation and financial status, and has an adverse impact on the medium and long-term development of Beijing FAB3. The company and the Swedish Silex management will continue to communicate with the relevant departments of the Swedish government and take all feasible measures as appropriate to actively seek possible solutions on the basis of Beijing FAB3 self-reliance, and strive to minimize the adverse impact of the Swedish ISP's decision.

Sai Microelectronics takes semiconductor business as its core. Under the background of the era of Internet of Everything and artificial intelligence, facing the unfavorable external environment, the company will continue to focus on the development of

MEMS process development and wafer manufacturing business, actively lay out GaN business, overcome all difficulties and challenges, adhere to the long-term development strategy, and strive to become a well-known semiconductor technology enterprise group based on local and international development. 25