Earlier this summer Micron Technology Inc., the last of the North American DRAM manufacturers, rejected a $23 billion acquisition bid by the Chinese, state-controlled, Tsinghua Unigroup. The bid was rejected for many reasons, not the least of which was the concern that the U.S. government would block this deal on the basis of national security concerns since Micron supplies chips used in the U.S. military’s weapons systems.
Additionally, there is the issue of the paucity of memory manufacturers globally, and Micron’s acquisition would mean the end to the U.S. having a national entity in the segment of the semiconductor industry.
Despite these formidable odds, the Chinese company is not deterred. At stake for China is its most recent economic plan which, like India’s, is rooted in the hope of turning the country into a value-added economic powerhouse. In the technology sector, China wants to become a global leader, manufacturer and end-to-end source for the semiconductor and electronics industry.
There is renewed momentum at Tsinghua for the Micron bid following a recent visit by chairman Victor Zhao, who was expected to meet with the North American chipmaker’s board of directors, according to a report in the New York Times last week.
There is much that stands in the way of the Micron-Tsinghua deal going through as explained by Bolaji Ojo in Electronics Purchasing Strategies when the initial news was released. While the visit by Zhao seems to indicate that the deal is more than testing the waters or bluster, the steep barriers remain. There’s an important caveat beyond the JV and M&A activity being engaged by Tsinghua; earlier in August, The Wall Street Journal (WSJ) reported that Tsinghua “hopes to expand its U.S. partnerships beyond hardware to companies like Facebook Inc., and Microsoft Corp. […].”
The WSJ also reported that Uber Technology’s Chief Executive, Travis Kalanick, visited Tsinghua earlier this summer. Clearly, there is a significant amount of international relationship building going on and this is not without purpose.
Whether there will eventually be a deal or not is unclear at this time. China is clearly not going to take no for an answer because of the cornerstone role that Micron plays in the semiconductor industry and because of its advanced memory manufacturing capabilities. Furthermore, with the recent extreme volatility and trouble in the Chinese stock market, there’s nowhere to go but up. The Financial Times (FT) reported Zhao said: “Any company that delists abroad and lists in China is going to see their share price go up by multiples. […] If the market here [in China] remains down, this bounce is three times. But if things improve, it could be five times.”
As many leading news sites have reported, none of the dogged determination by Unigroup should be a surprise. The company says it has the bankroll to finance significant purchases, yet, as FT notes, there are “wide gaps between Unigroup’s deals and its resources. Some believe this gap suggests it has had help from the state […].” Unigroup does have the solid backing of the Chinese government, and it has the incentive of market leadership positioning within China ahead of the effort to build a domestic chip industry, particularly covering key markets such as memory.
The Micron acquisition is an important piece in the Chinese semiconductor portfolio. Should the Micron acquisition be blocked by the U.S., there is likely a specific back-up plan. As 24/7 Wall Street observed: “If the company cannot acquire Micron then according to some reports, Tsinghua Unigroup may attempt to form a partnership involving Chinese DRAM/NAND manufacturing. This partnership might not face as much opposition from regulators while allowing for Micron to grow its Chinese sales base.”