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Tsinghua-Micron Deal: A Major Step in China’s Chip Space

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Jul. 27 2015, Updated 10:06 a.m. ET

About the Tsinghua-Micron deal

In this part of the series, we’ll discuss various aspects surrounding Tsinghua’s offer for Micron Technology (MU). If the deal happens, it will be the largest Chinese takeover of a US company to date. As we discussed previously in this series, Tsinghua offered $23 billion to acquire Micron Technology.

The above chart shows the top five largest deals that were done by Chinese companies to date.

Tsinghua Unigroup’s current market cap is ~47 billion yuan RMB or $7.6 billion. Micron’s market cap is ~$23 billion. It’s evident that Tsinghua will require funding to do the takeover. We’ve already discussed China’s desire to grow its semiconductor sector. As a result, the Chinese government will use the necessary national funds to accomplish industry M&A (mergers and acquisitions).

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China is strategically ousting technology players

Growth in China’s economy combined with rising penetration of third platform technologies points towards high growth in China’s server, storage, and networking equipment markets in the future.

In 2014, the use of Microsoft’s (MSFT) Windows 8 was banned on Chinese government computers. Chinese banks were encouraged to switch over from IBM (IBM) servers.

In February 2015, Chinese regulatory authorities fined Qualcomm (QCOM) 6 billion yuan, or ~$975 million, for its mobile phone technology licensing practices on the grounds of China’s anti-monopoly law. In mid-2014, a location-tracking function on Apple’s (AAPL) iPhone was called a “national security concern” by Chinese broadcasters.

If you’re bullish about Micron Technology, you can invest in the QQQ PowerShares ETF (QQQ). QQQ invests about 0.59% in Micron.

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