A Chinese company, Tsinghua Unigroup is planning to offer $23 billion for Micron, the last U.S.-based DRAM-maker and the world’s third largest.
Hit or miss, the reported deal is certain to add bandwidth to growing tensions between the US and China over semiconductor production. Credit Suisse calls the planned deal evidence of a “brewing trade war.” (As of this writing, Micron denies it has received an offer letter, but multiple media outlets state that the deal is being prepped by Tsinghua).
If accurate, volatility in the electronics supply chain is almost sure to result.
A successful Micron deal would be the largest takeover by far of any American company by a Chinese firm, and place a giant DRAM chipmaker in the hands of a Chinese company with close ties to the Chinese government. A spinoff of an elite technical university, Tsinghua Unigroup once employed the son of a former Chinese President in a powerful senior position and is likely to receive state funds to consummate any deal.
To be sure, most observers here are doubtful; the Wall Street Journal, first to report the plan, cracked that the offer faced a “Great Wall” of scepticism.
For one thing, the offer price is based on current share levels, Micron stock having plunged over the last couple of quarters. Investors would likely want something reflecting a much more favourable 100-day moving average.
But Credit Suisse–and here is where it gets interesting–takes a different angle. Its analysts characterize the deal as “highly unlikely to get past U.S. regulators who are increasingly viewing semiconductors as a strategic industry.”
Close scrutiny could come from the feds' Committee on Foreign Investment in the U.S. (CFIUS) a panel of a dozen departments and agencies. If CFIUS tabs a deal as a national security threat, it would almost certainly be blocked.
True, Micron's products do not mainly impact the military supply. However, both countries have been accused of burying back doors in microelectronics sold in the two respective countries. With Micron under Chinese ownership, its DRAMS, NANDs, and NOR flash memory in devices and data centers around the world, the spectre of sabotaged chips would become larger still, in Washington's probable view.
The worry about cybersecurity compromised through hardware is on center stage right now in security circles. For example, in the continuing battle against counterfeit electronics in the military supply chain, a lurking issue has been that of sabotaged, and not just nonconforming, chips. More than one government official has remarked to this writer that a major federal concern was that of sabotaged chips swimming undetected in a sea of counterfeits. The fact that China is the source of roughly 70% of counterfeit electronics by nearly every study does not assuage this concern.
It all adds up, I think, to a deal headed to the showers.
But my fear is that the semiconductor industry loses either way. China is acting in its own national interests. It has recently imposed even more draconian demands on foreign tech companies operating in China. A Micron deal quashed by Washington could elicit further such steps by the Chinese.
Most fundamentally: China has failed to create its own semiconductor industry, spending more on imported chips than on oil. Advantage to the U.S.–an untenable status quo from the Chinese point of view
All this is no doubt what Credit Suisse means by a “brewing trade war.”
Let's face it: a takeover of Micron by a quasi-state-owned Chinese firm is more than a little scary. But the alternative can give us no comfort.