In the fourth part of this series, we saw that Micron (MU) rejected a $23 billion acquisition offer from China’s (MCHI) Tsinghua Unigroup in June 2015. In this article, we’ll explore whether Micron might enter into any kind of deal with Tsinghua in the future.
China’s investment in the semiconductor space
China looks to have become self-sufficient in the semiconductor space and has announced plans to invest up to $161 billion over the next decade to develop the domestic industry. A major portion of the investment would be dedicated towards the production of DRAM (dynamic random access memory) or NAND flash memory. This has raised concerns of increasing competition in the semiconductor space.
Competition from China unlikely
However, Micron believes that China is unlikely to be competition in DRAM manufacturing without support from memory giants Samsung (SSNLF), SK Hynix, and Micron. This is because China lacks technical knowledge in semiconductor manufacturing.
At a Raymond James event on September 22, 2015, Micron’s vice president of investor relations Kipp Bedard stated that a Chinese firm would require $40–$50 billion and five to ten years to build a DRAM fabrication facility, or fab, that can compete with the three memory giants. Even if China succeeds in building its own DRAM fab, the new fab would boost wafer capacity and cause prices to fall significantly. Low prices would lead to huge annual losses for the fab until the market is able to absorb the new capacity.
Semiconductor companies invest in China
As it is difficult for China to grow in the semiconductor space organically, it is attracting global technology companies to set up fabs in the nation. Samsung and NXP Semiconductors (NXPI) plan to build manufacturing capacity in China. There is a possibility that in the distant future Micron might consider building a new fab in China.
Micron in China
At the conference, Kipp Bedard mentioned that Intel (INTC) might look to manufacture the breakthrough non-volatile memory 3D XPoint with other manufacturers, as Micron’s production capacity may not be sufficient to meet demand. If this holds true, Micron might look to build a fab in partnership with Tsinghua Unigroup. Micron’s entry into China depends on how the demand-supply balance of memory products unfolds in the future.