Is China a threat to Micron?
In the previous part of the series, we saw that secular demand trends in the memory market might encourage suppliers to compete in terms of advanced technology. The growing opportunity in the memory market has also attracted China (FXI) to the space despite several entry barriers.
The cost of manufacturing memory chips has increased significantly, discouraging smaller players from entering the space. However, China has sufficient capital to manufacture memory chips. What it does not have is the desired IP (intellectual property). China’s Tsinghua tried to address this problem by making a failed attempt to acquire Micron Technology (MU) in 2015—even infiltrating the chip giant to gain access to private IP.
Recently, DigiTimes reported rumors that Intel (INTC) might enter into a licensing agreement with Tsinghua to manufacture 3D NAND (negative AND) chips. If this happens, China could cause a large oversupply by producing large volumes of 3D NAND chips at a very low cost.
How would the memory market look with China as a player?
Even if China succeeds in manufacturing memory chips, they would be for low- or mid-tier Smartphones and consumer products. It seems like Micron’s management saw this coming and has been phasing out of low-margin memory products to focus on high-margin specialized memory products.
Eventually, memory market dynamics could change, with Micron, Samsung (SSNLF), and SK Hynix dominating the high-margin memory market and China owning the low-margin memory market.
Next, let’s look at Micron’s DRAM (dynamic random-access memory) and NAND business and understand the market environment for 2018.