Shares of Micron Technology (NASDAQ: MU) fell 2% on Monday after CEO Mark Durcan warned that China could flood the memory chip market within the next few years — if it follows through on its plans to build its domestic semiconductor industry.
During an event in Taipei promoting the merger of Micron and Taiwanese chipmaker Inotera Memories, Durcan stated that if China spends “the money that they say they are capable of spending, they can create oversupply.” He also stated that it was “absolutely” a concern for the industry.
The key facts
Micron is the world’s fourth-largest NAND memory chipmaker after Samsung, Toshiba, and Western Digital‘s SanDisk — in that order. It’s also the third-largest mobile DRAM maker after Samsung and SK Hynix. It’s been trying to widen its moat against those rivals by developing faster memory technologies like 3D NAND and 3DXPoint with Intel, and merging with smaller companies like Inotera.
Micron’s revenue has declined year-over-year for six consecutive quarters, and it posted net losses over the past three quarters. That decline was mainly attributed to the glut of memory chips in the market, which drove prices down. However, the supply of chips has gradually declined this year and prices have started climbing again. That shift has convinced analysts that Micron’s revenue will rise 31% next year.
The looming problem
China is eager to build its own domestic semiconductor for two reasons — its growing distrust of U.S. tech, and its need for economic growth. To accelerate that growth, China’s state-backed tech conglomerate Tsinghua Group tried to buy Micron and a 15% stake in Western Digital, but both deals were blocked due to U.S. security concerns.
Despite those setbacks, China is still aggressively investing in its own homegrown semiconductors. If it mass produces cheap memory chips to supplement the growth of other markets — like mobile devices, PCs, and data centers — the global supply would surge, and incumbent memory chipmakers like Micron could take a big hit.
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