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Why Intel Plays a Major Role in the Micron-Tsinghua Deal

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Jul. 28 2015, Updated 11:06 a.m. ET

Intel’s involvement with Micron

In the last part of this series, we discussed the probable Micron-Tsinghua deal. Apart from being a crucial customer of Micron Technology (MU), Intel (INTC) plays another key role in the Micron acquisition. Micron, along with Intel, develops NAND flash technology. DRAMs (dynamic random access memory) are the memory chips used in computers and servers as the primary memory systems. NAND flash products are electrically rewritable, non-volatile semiconductor memory devices that retain content and function even when there isn’t power.

For the transfer of NAND Flash Technology, Tsinghua Unigroup will have to discuss the terms of the deal with both Micron and Intel.

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Intel’s billion dollar investment in Tsinghua

Earlier in this series, we discussed Intel’s association with Tsinghua Unigroup. Intel leads the semiconductor space as the above chart shows. It’s followed by Samsung (SSNLF) and Qualcomm. They command a 10.20% and 5.70% market share, respectively. Micron and SK Hynix are other players.

Intel made a strategic alliance and investment in Tsinghua Group in 2014. It bought a 20% stake in Tsinghua Unigroup for $1.5 billion.

Micron has a partnership with Taiwan-based Inotera to produce DRAM. If Micron agrees to the buyout, this joint venture could be threatened because a Chinese company owns Tsinghua. According to Srini Sundararajan of Summit Research, Intel’s pending merger with Altera is the “lens through which” the US government will likely view the Tsinghua-Micron deal.

Intel depends on Micron for manufacturing chips. Micron is establishing a 3D NAND pilot line in Singapore. It isn’t part of the Intel joint venture fab. Mehdi Hosseini of Susquehanna Financial thinks that this is why Tsinghua Unigroup is keen on Micron. It could facilitate 3D NAND capacity at Micron’s NAND fabs.

If you’re bullish about Intel, you could invest in the PowerShares QQQ Trust, Series 1 (QQQ) and the Technology Select Sector SPDR Fund (XLK). Intel accounts for 2.85% of QQQ and XLK, respectively.

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