Micron's China chip business runs into a Great Wall
A Chinese court, ruling in favor of local semiconductor firms, has temporarily stopped U.S. chipmaker Micron from selling certain products in China, according to several media reports. Micron has yet to confirm the ruling. State-owned chip maker Fujian Jinhua Integrated Circuit Co. and its Taiwanese partner, United Microelectronics Corp. (UMC) allege that Micron has made products that violate their respective patents.
For years, U.S. chipmakers have tried to have it both ways in China. They want the gravy train to keep running - China is the world's No. 1 buyer of integrated circuits - but don't want to cede technological superiority to the Chinese. So they resist Chinese ownership: Recall Micron's rebuff of Tsinghua Unigroup's 2015 takeover bid.
That approach is now colliding with China's own techno-nationalism. Beijing has vowed to achieve self-sufficiency in semiconductor manufacturing in the coming decade. It's part of an ambitious scheme to become an advanced manufacturing powerhouse - instead of the world's textile and smartphone factory. If U.S. chipmakers aren't for sale, then Beijing will find ways to squeeze their China businesses to benefit domestic competitors.
In this case, it looks like payback. In a December 2017 suit, Micron alleged that Jinhua and UMC pilfered its trade secrets. Taiwanese prosecutors are conducting a related investigation of UMC and some of its employees, who formerly worked at Micron. Jinhua has refuted the allegations.
Given Beijing's professed techno-nationalism, Micron is overly dependent on the Chinese market, which accounts for more than half of the company's annual revenue. The company sells Micron-branded products as well as Crucial-branded notebook DRAM (semiconductor memory) modules and solid-state drives (SSDs) in China. That dependence gives Beijing ample leverage to pressure the U.S. chipmaker.
At the moment, the Boise, Idaho-based firm is assuaging investors, claiming that the current ban on its products in China won't affect quarterly revenue by more than 1%. Its shares rose more than 3.6% after that announcement. We'll see soon enough if Micron's forecast is overly bullish.
In a July 4 press release, Taipei-based research firm TrendForce pointed out that the Chinese court's judgment not only banned the sales of some Micron-branded and Crucial-branded products in China, but also ordered Micron’s Xi'an IC assembly/testing plant in Xi’an to halt operation and Micron Technology (Shanghai) to cease sales. "The judgment will have significant impacts on the sales of products under Micron's own brand or the Crucial brand in China. Moreover, the businesses of Micron's downstream partners will also be affected," TrendForce said.
The situation could also escalate in the context of the Sino-US trade dispute, especially if President Trump slaps more tariffs on Chinese goods.
“It certainly appears semiconductors could move to the prime time in negotiations between the Trump administration and China,” Evercore ISI analyst C.J. Muse told Reuters last week. In the near-term non-U.S. chipmakers could benefit, he added.
In the press release, TrendForce noted that Micron still has the right to appeal the lawsuit in China. "The follow-up of this case is bound to become the focus of the global memory industry amid the critical stage for the US-China trade war," the research firm said.