Instinet Weighs in on Reports on Micron (MU) China Partnership
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Instinet analyst Romit Shah weighed in on Micron Technology (NASDAQ: MU) following reports Thursday from Nikkei that Changjiang Storage is in talks with Micron to license NAND flash as well as DRAM technology. "We are in talks with Micron for possible licensing for its NAND flash as well as DRAM technology, but have yet to reach a conclusion," Changjiang's Ding told the Nikkei Asian Review. "We expect the talks can be finalized and some alliance can be reached by next year," he added.
Shah said a partnership between Micron and China makes strategic sense for all parties. "Big picture, China consumed more than 40% of global IC supply in 2015, but produced only 15%. Silicon represents one of the biggest gaps in the country’s trade deficits. As such, China is looking to capture a larger share of the global semiconductor industry by producing more devices such as memory, logic, and processors that go into consumer, automotive, and industrial markets. However, we know that IP, technology, and brand create high barriers. As such, we believe China is looking to partner with incumbents in the space. At the same time, we believe Micron is looking to strengthen its positioning in NAND against rivals such as Samsung and Intel. The company is lagging in scale (market share = 15%). A partnership with China would expand the company’s footprint and improve profitability."
While they believe Micron is not averse to working with China; they are skeptical that the company would engage in cross-selling of DRAM or NAND IP. "The U.S. government has already expressed concern about Micron sharing its DRAM IP with China. In NAND, Intel is likely to have a heavy hand in the discussions, and in our view, would not support an IP licensing agreement. As such, we believe a supply agreement is most likely to resemble Micron’s joint venture with Inotera, whereby Changjiang would only be allowed to produce for Micron. Micron already has two fabs (Fab 7 and 10x) in Singapore with 3-D equivalent capacity of roughly 140-150k wafer starts per month. If Micron were to add capacity, we believe China could make the capital investment ($2.5bn for 50k wspm) to manufacture NAND products that would be sold to Micron based on a formula that equally shares margin or that reflects adjustments to market prices."
The firm maintained a Buy rating and price target of $23.00
Shares of Micron Technology closed at $19.18 yesterday.
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