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U.S. memory maker buyout by Chinese firm not likely to succeed

Lucas Mearian | July 16, 2015
A reported buyout attempt by China's largest computer chip maker of U.S. based Micron Technology isn't likely to succeed, according to industry analysts.

Micron headquarters
Micron's Boise, Idaho headquarters. Credit: Micron

A reported buyout attempt by China's largest computer chip maker of U.S. based Micron Technology isn't likely to succeed, according to industry analysts.

Micron is one of the top five semiconductor makers in the world, and it has a lot to offer Tsinghua Unigroup, which has reportedly bid $23 billion for the Boise-based firm.

In a reply to Computerworld, Micron denied it has received any offer from Tsinghua.

Several analysts said The Wall Street Journal's report of a bid could likely be a "trial balloon." If real, however, the deal could become the largest Chinese takeover of a U.S. company on record.

"I think Micron can turn down/reject the offer unless it becomes very attractive," Fang Zhang, a memory analyst with market research firm IHS, said in an email reply to Computerworld.

Gregory Wong, an analyst with Forward Insights, said he's been aware of "rumors" of a Micron buyout for more than a month, and "not receiving a formal offer does not mean there have been no discussions."

What makes a potential deal even more interesting is that Intel holds a 20 percent stake in Tsinghua, and Intel and Micron have also been involved in a close, long-term memory development partnership.

So, on the surface, a buyout of Micron would not likely affect any current or future partnerships with Intel.

As a result of its partnership with Micron, Intel gets half of the company's Utah fabrication plant's output sold it at cost. Intel, in turn, helps Micron design chips and develop new lithography processes.

What would Tsinghua Unigroup get from the deal?

It isn't surprising that a government-sponsored Chinese firm plans to enter the DRAM and NAND markets, considering the smartphone growth in China. While growth has slowed in recent quarters, China's smartphone market is still the largest in the world, according to IDC. During the first quarter of this year, 98.8 million smartphones shipped in China, IDC said.

Jim Handy, an analyst with Objective Analysis in Los Gatos, Calif., however, is surprised that the company would plan to enter the market via an acquisition versus organic development.

"We have been telling our clients for the past few years that either China or India would create a new DRAM/NAND manufacturing company, especially since memory chip makers have enjoyed a long period of profits, and this usually motivates outsiders to invest in new DRAM makers," he wrote in an analysis.

"We have even heard that China's upcoming 5-year plan would include taking a 20 percent share of the memory chip business, which last year would have represented some $12 billion in revenues," he added.

 

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