A proposed purchase of Micron shows China wants to either co-opt or buy foreign chipmakers

Obsession
China's Transition
Obsession
China's Transition

Why make it when you can buy it?

That’s one question faced by Tsinghua Unigroup, a Chinese chipmaker backed by one of the nation’s top universities.

The company has publicly expressed interest in buying Micron, the Idaho-based semiconductor producer, for about $23 billion. According to the Wall Street Journal, which first reported the alleged bid, such a deal would value Micron shares at $21, marking a 19.7% premium on their Monday closing price. Micron claims it hasn’t received a bid.

For Tsinghua, a purchase of Micron would provide intellectual property that could boost its technology and help it sell into countries with strict IP standards. The company’s tech prowess and scale both pale in comparison to its foreign competitors, so without help it could perpetually lag behind. Last year domestic chipmakers like Tsinghua supplied an estimated 9.5% of the nation’s overall semiconductor market, which was valued at well over $150 billion.

The government wants to improve that share. It has told domestic media it intends to spend $161 billion in fostering growth among domestic chipmakers. It’s also exerted pressure on foreign firms, namely by issuing burdensome fines and lawsuits. Qualcomm, for example, ultimately paid $975 million to the Chinese government after settling an anti-monopoly lawsuit earlier this year.

Foreign technology firms have been cooperating more with Chinese companies. Not long after Qualcomm settled, it announced a joint venture with Semiconductor Manufacturing International Corporation, also known as SMIC. Intel invested $1.5 billion in two Chinese competitors, one of which was Tsinghua Unicom. Given that Qualcomm and Intel already have solid grounding in China, such partnerships are likely an attempt to appease authorities.

But joint ventures can be difficult to manage. They require trust among two parties, and trust is in short supply when the political stakes are high. By buying Micron, Tsinghua Unigroup would gain IP muscle for competing with the likes of Qualcomm. But it could also lead to squabbling over who calls the shots.

If the deal happens, Micron would join other component makers recently acquired by players in the Middle Kingdom. Last month, a Chinese consortium known as Uphill received approval to acquire California-based Integrated Silicon Solutions for $736 million. Two months before that, another Chinese consortium closed a purchase of OmniVision Technologies, which supplies camera sensors for hardware firms (including Apple), for $1.9 billion.

Those deals don’t come close to the reported $23 billion bid for Micron. A purchase of that scope could draw scrutiny from the Committee of Foreign Investment in the United States, especially as the US and China continue to spar over cybersecurity. The agency drafted a set of rules to ensure that only US citizens can access and control certain information if a company is considered critical to “national security.” But it’s unclear how enforceable such policies are.

Either way, China is making sure that its technology firms get the IP they require to grow and compete. It’s up to foreign firms to decide if they’ll comply.

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