Tsinghua Pursuit of Micron Shows China’s Determination in Chips

Will U.S. Allow a China Micron Buyout?

Zhao Weiguo is becoming the poster child for China’s determination to become a semiconductor powerhouse.

Zhao, chairman of Tsinghua Unigroup Ltd, has prepared a $23 billion bid for Micron Technology Inc., according to a person with knowledge of the matter. Any deal for the U.S. maker of memory chips known as DRAM would require approval from U.S. regulators, the person said.

A Micron purchase would instantly vault Tsinghua Unigroup and China into the ranks of serious competitors to South Korea’s Samsung Electronics Co. and SK Hynix Inc., in a $78 billion market for the memory chips that go into all computers and smartphones. It would also further President Xi Jinping’s goal of making the country more self-sufficient in technology.

“Chinese state ownership of a supply-and-demand driven chipmaker would change the dynamic in a cyclical industry,” Anand Srinivasan, a Bloomberg Intelligence analyst in New York, said in a report. Any focus on earnings is “possibly trumped by a company’s strategic importance to a nation.”

A 50 percent drop in its share price this year takes Micron’s stock valuation to 5.7 times earnings, the lowest of the 30 members of the Philadelphia Stock Exchange Semiconductor Index. The index trades at an average 20.1 times earnings and has slid 3.3 percent this year.

Chip Demand

Two-thirds of Micron’s drop this year occurred in June, giving it the worst monthly performance in five years amid a weak outlook for computer demand and DRAM prices, Srinivasan wrote July 7.

Boise, Idaho-based Micron said it hasn’t received an offer from Tsinghua.

Micron would give China “access to the manufacturing and design know-how which would significantly reduce China’s learning curve,” JPMorgan Chase & Co analysts Harlan Sur, Bill Peterson and Grace Chuang wrote in a report. China consumes about $10 billion of DRAM and the country has an interest in developing a domestic industry, they said.

With the world’s top PC maker, Lenovo Group Ltd., and three of the five-largest smartphone makers, China is one of the biggest suppliers and consumers of electronics products. Each of those devices requires some form of DRAM, an integrated circuit that temporarily stores information to speed up processing.

Zhao hasn’t been afraid to work with U.S. firms.

Last year, Intel Corp., announced plans to spend as much as 9 billion yuan ($1.4 billion) for a stake in Tsinghua Unigroup. In May, the Chinese company agreed to buy a 51 percent stake in Hewlett Packard Co.’s Chinese unit.

Apart from being the largest outbound chip acquisition by a Chinese acquirer, a deal would catapult Tsinghua into a highly competitive market dominated by Samsung Electronics, Commerzbank AG analyst Thomas Becker wrote in a report.

Micron and Hynix each have about 26 percent of the DRAM semiconductor market, while Samsung holds 40 percent.

“Such a deal takes semi M&A to the next level as the Chinese after years of standing on the sidelines get serious on their ambition to form a top ten semi player,” Becker wrote.

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