Empyrean Technology, China’s leading developer of chip design software, has recently transferred complete ownership to the state-run China Electronics Corporation (CEC), as reported by the South China Morning Post. This major shift in control is a direct result of stringent U.S. sanctions imposed on China’s technological sector earlier this month, which notably included placing Empyrean on the U.S.’s “Entity List”.

Documents released by Empyrean indicate that its board of directors granted CEC full ownership rights this past Monday. In the process, four Empyrean directors resigned, enabling CEC to assume control of six of the company’s 11 board seats (adding to the two they previously held as a 34% stakeholder). A comprehensive shareholder meeting is expected to officially confirm this transition. Following this announcement, Empyrean’s shares on the Shenzhen Stock Exchange surged by 9%, reaching 134 yuan (approximately $18.48).

Empyrean Technology ranks as the fourth largest EDA (Electronic Design Automation) company globally, trailing behind U.S. firms such as Cadence, Synopsys, and Siemens EDA. EDA companies are pivotal in developing tools for both digital and analog semiconductor design. Empyrean is noted for its collaboration with Huawei in advancing the latter’s capabilities to 7nm and 5nm chip processes, and it stands as the premier EDA firm within China, holding a 5% market share in a sector dominated by American entities.

Following its inclusion on the Entity List, Empyrean issued a statement to reassure investors that the impact of this development was manageable, indicating that the company would survive this setback. The recent acquisition by CEC, a company with robust governmental ties and resources, could be the strategic move Empyrean referred to, potentially stabilizing and benefiting the firm in the foreseeable future.

Empyrean was one of 140 Chinese entities added to the “Entity List” by the U.S. Department of Commerce on December 2, marking the third significant round of sanctions in recent years. Entities on this list are identified as threats to U.S. national security, facing stringent trade restrictions and severe legal consequences. This action is part of the ongoing “Chip War,” a trade conflict initiated by the U.S. aimed at curbing China’s rapidly growing domestic chip production, which is perceived as a threat to U.S. economic and security interests.

A critical aspect of the latest update to the Entity List is the inclusion of 24 types of chipmaking tools, some possibly related to EDA technologies used by Empyrean for major clients like Huawei. Despite enduring several years of U.S. sanctions, Huawei continues to thrive both in China and internationally. The U.S. is also preparing to vote on a $3 billion defense bill aimed at removing all Chinese telecommunications equipment from its infrastructure, a project that could ultimately cost over $5 billion to completely eliminate all hardware from Huawei and ZTE.