China may have Cash, but it can’t have Chips

September 13 last year (2017 that is) was one of those annoying days for China; President Trump vetoed the stoppage of Chinese private-equity firm’s proposed $1.3 billion purchase of Lattice Semiconductor, an Oregon-based chip manufacturer. Worst of all, that wasn’t the first failed take-over that China has been facing.

Make no mistake that China has cash and it has tons of it, as much as 34 billions US dollars have been invested to acquire American chip companies, but only 4.4 billion was ever transacted. Foreign governments have been wary China’s efforts to acquire technology assets in their country, as China invests greatly in hardware and software companies at home and abroad. Put it simply, everyone’s pretty afraid one day China would be too powerful to stop, just take a look how Huawei have overtaken Ericsson, Cisco and Motorola in the networking industry. China has the ability to go cheap and great, and if China acquires even more technology, patents and intellectual properties from foreign soils – they’ll monopoly almost everything.

China Wants Homegrown Chips

As of 2014, China still imports roughly 90% of the semiconductors that it uses to manufacture all of its electronics. China understands this and it wants to build its own chips for every electronic devices it manufactures, as a result they have been going on a spending spree to acquire as many semiconductor companies as they could – all over the world.

Many of these deals have fallen through unfortunately, with CFIUS (Committee on Foreign Investment in the United States), an inter-agency branch of the Treasury that examines foreign purchases of domestic companies and assesses their potential impact on national security giving China a hard time to achieve its ambitions. While you may argue that CFIUS doesn’t have the authority to block these acquisitions, but it could “recommend” a yes or no to both parties involved that a certain deal should be terminated. And did I mention that the CFIUS could refer any case to the president directly, who possesses the necessary power to veto the deals?

President Trump doesn’t want China to get any where near its chip ambition if it could, or any other ambitions as a matter of fact.

Enter Micron and Western Digital

To this day, Micron remains the largest US-based manufacturer of DRAM flash memory, a key component of almost all electronic devices that utilizes at least some form of memory storage. Majority of other American rivals have already ceded ground to competitors in Japan, Korea and Taiwan. Hence, it wasn’t surprising that when an attempted Chinese takeover of Micron in July 2015 was hit with a roadblock, with CFUIS speculated coming into play unofficially.

Albeit being offered up to $23 billion by Tsinghua Unigroup to purchase the company, Micron made it clear that it was not interested on the deal from the get-go. There were reports that Tsinghua’s chairman travelled to the US to have talks with Micron, but no further details emerged from those talks.

Had the deal went through, it would had made a big blow to the US tech industry. However, it would seemed that Tsinghua Unigroup wasn’t going to stop. As 2 months later, one of its subsidiary, Tsinghua Unisplendour announced they intended to pay $3.78 billion for a 15% stake in Western Digital. The company told investors it did not expect the deal to be subject to a CFIUS review because the stake was non-controlling. But in February 2016 Tsinghua backed out of the deal once it became clear that a probe was about to come crashing like a bull. The failed deal didn’t end the relationship between the two companies, as a year later both companies announced they had formed a joint venture with Tsinghua as the major shareholder.

All these may seem like endless roadblocks for China’s priority ambition in building its own chips, but a recent look at how the Chinese government are playing its card with Qualcomm and the failed NXP takeover, there’s much interesting story lying ahead.

The future may lies uncertain for China but we are always here to help out with your employee training. Explore more opportunities at Info Trek because unlike Trump, we don’t build walls, only good solutions 🙂

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