Micron And China's Semiconductor Dreams

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Overbet For Value


  • Tsinghua Unigroup is unlikely to ever acquire Micron or even form a major joint venture with Micron to build a new fab.
  • The true replacement cost of Micron is significantly more than the $26/share that John Pitzer suggested as the replacement cost of Micron's fabs.
  • China will spend 1 trillion renminbi over the next 5-10 years to develop its semiconductor industry, but this investment is unlikely to result in a new DRAM fab from China.

The two most important economies in the world today are those of China and the United States. China's annual GDP growth rate from 2010-2014 has ranged from 7.4%-10.6%. In the same period, annual GDP growth in the US ranged from 1.6%-2.5%. China's GDP (in USD) in 1980 was $303.76 billion and has grown to $10.36 trillion in 2014.

Over the last year, fears of a massive slowdown in China's economy have escalated dramatically. Former Treasury Secretary Hank Paulson stated China's economy has "run out of steam." In an effort to keep the economy growing over the next few decades, Chinese policy has shifted its focus to the technology sector. In 2014, China developed a policy in which it will invest up to 1 trillion renminbi (~$157 billion USD) over the next 5-10 years across the semiconductor industry.

In July 2015, rumors of Tsinghua Unigroup bidding $23 billion to acquire Micron (NASDAQ: NASDAQ:MU) surfaced. There is no reason to believe that a bid at that price from a Chinese company is going to result in a deal. The DOJ and FTC might not like such a deal. Senators John McCain and Chuck Schumer certainly aren't fans of a potential acquisition of Micron by a Chinese company for national security reasons. Shareholders of Micron are highly unlikely to agree to sell their shares for $21 apiece. There was never really a chance of this deal occurring. I suggested in this article that Intel is significantly more likely than Tsinghua Unigroup to acquire Micron. However, even an Intel-Micron deal is not all that likely.

It's clear that Tsinghua Unigroup is not acquiring Micron. In recent weeks, rumors of some sort of Micron and Tsinghua Unigroup partnership or joint venture have emerged. It seems almost as unlikely as a Micron-Tsinghua merger. Micron does not need capital from China

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Disclosure: I am/we are long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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