China bids $23 billion for Micron
In a bold move to put China at the forefront of semiconductors, Tsinghua Unigroup has bid $23 billion to buy Micron Technology. The deal would fill one of the biggest strategic holes in China’s chip industry but is expected to raise political issues all the way to the U.S. White House.
The Wall Street Journal reported the bid after close of the U.S. stock market. With $16.8 billion in revenues last year, Micron is the second-largest chipmaker in the U.S. following Intel.
The deal makes sense for China but could become a political football in the U.S. where a presidential campaign is already in full swing.
China is trying to close a $150 billion trade deficit in semiconductors. It consumes a third of world’s chips but only produces about 12 percent of them.
Last year, China announced a $20 billion investment fund to develop its chip industry. The resulting spending could be as high as $100 billion after contributions from provincial governments and local industry are included.
Tsinghua Unigroup, an investment arm of Tsinghua University, has been on the forefront of the latest deals. It brokered the deal to merge Spreadtrum and RDA, two of the country’s top players in mobile SoCs. The deal later attracted a $1.5 billion investment from Intel, which has long struggled to carve out a position for itself in smartphone chips.
Tsinghua likely will seek contributions from China federal and regional governments as part of the Micron bid, said Samuel Wang, a China analyst for market watcher Gartner. “It looks to me like a situation where they propose the deal first, and find the funds later,” Wang said.
The China government is contributing $200 million to a $780 million deal from a chip packaging company in Jiangsu province for STATS ChipPAC a packaging specialist based in Singapore. It marks one of the first big checks written as part of the country’s $20 billion semiconductor investment fund, said Allen Lu, president of the China branch of the SEMI trade group.
Next: Buying global presence
Earlier this year, Lu predicted China would invest in the memory chip business. He reiterated that prediction in a talk at the annual Semicon West event here minutes before the Micron reports hit.
China officials were said to have been in talks with Taiwan’s Powerchip as well as the former CEO of Japan’s Elpida in search of a deal on memory chips, said Gartner’s Wang.
China produces only about 12 percent of worldwide chips, but uses about a third of them. Source: Gartner.
The deal could bolster China’s chip industry despite the fact Micron has no fabs in China. “The model China is using is one of building global companies – they need the intellectual property, market share and expertise,” he said.
Most of Micron’s chip plants are outside the U.S. It has DRAM fabs in Boise, Idaho, and Manassas, Virginia that have been scaled back in recent years, said Jim Handy, a memory-chip watcher with Objective Analysis (Los Gatos, Calif.). Increasingly, Micron’s fabs are overseas. It bought Elpida’s fabs in Japan and its interest in RexChip in Taiwan. It has an existing flash memory fab partnership with Intel in Singapore and is building a second plant there now.
Next: A good time to buy
It’s a good time to bid for Micron, second to Samsung among the world’s top memory chipmakers. Micron’s stock price slid this year from $35 to $17, despite the fact memory chip prices have been on the rise.
Gartner analyst Bob Johnson predicts DRAMs will be in oversupply later this year due in part to new Samsung and SK Hynix fabs coming on line. However, he predicts NAND flash revenues will rise 8.1% on a compound basis over the next several years. That’s nearly twice the 4-5% growth rate typical these days of semiconductors overall.
One Wall Street analyst who asked not to be named said he gives the deal less than a 50 percent chance of clearing U.S. regulators. It is the fourth deal by China for a U.S. chip firm so far this year following bids still pending U.S. approval for Omnivision and ISSI, he said.
A U.S. agency on foreign investments that reviews deals sees semiconductors as strategic and China as relatively high on their threat level, the Wall Street analyst said. The deal could become a political football for presidential candidates eager to show support for U.S. manufacturing.
However, the DRAM market is notorious for gut wrenching falls and rises with cyclical imbalances in supply and demand. “It’s unusual to have memory chips made in the U.S. considering the business is usually seen secondarily for profit and primarily for scale,” said analyst Handy.
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