US Business Cancels Sale to Entity-Listed Chinese Company
Rockley Photonics, a California photonics-based health monitoring and communications solutions company, won’t follow through with a sale to Hengtong, a Chinese power and fiber optic cable manufacturer, following Hengtong's addition to the U.S. Entity List this month. Rockley suggested the sale, which it described as a “data-communications-related technical sale,” could be subject to the Export Administration Regulations and require a Bureau of Industry and Security license.
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The export restrictions on Hengtong will require Rockley to “adjust our strategy for monetizing our communications technology,” Rockley CEO Andrew Rickman said Dec. 22. ‘We continue to fully comply with the regulations and have decided not to proceed with our technical sale … under the current circumstances.”
The announcement came soon after BIS added Jiangsu Hengtong Optic-Electric Co. to the Entity List this month for trying to illegally acquire U.S.-origin technology to support China’s military modernization efforts (see 2112160017). Rockley said it formed a joint venture with Jiangsu Hengtong called Hengtong Rockley Technology Co., which would have received Rockley’s sale.
In a separate SEC filing earlier this month, Rockley said Hengtong Rockley Technology Co. was its second-largest customer after Apple. Together, Apple and Hengtong Rockley Technology Co. “collectively accounted for 100% and 99.6% of Rockley’s revenue” in 2020 and 2019, respectively, the company said. Rockley said it had an agreement with Jiangsu Hengtong in which Hengtong Rockley Technology Co. would “procure chipsets” from Rockley for use in finished products, and Hengtong Rockley Technology would own the copyright of the final designs stemming from the chipsets.
Rockley said it primarily develops a “sensing platform” for health monitoring purposes and its now-canceled technical sale was “intended as an efficient way to monetize Rockley’s innovative data communications technology without distracting from our primary focus on our health and wellness solutions.”
The company said it’s “disappointed in the near-term impact on our company” but believes the decision will be a “net positive” that will “not affect” its long-term business outlook. “The Company is currently reviewing its relationship with the [joint venture] and will make appropriate decisions based on its findings,” Rockley said.