Trade Wars: Micron vs. Asia
Jobs before profits
Guest Opinion Christopher Whalen is the editor of The Edge: Research from the Technology Front, a daily newsletter published by Ramberg, Whalen & Co. LLC, a specialty research and publishing firm focused on the semiconductor industry.
Micron Technology says that the ruling by the US Commerce Department that it is going to start an investigation of Korean government support for bankrupt Hynix Semiconductor marks an important "victory". But in the six-nine months that it takes the US government to complete its trade inquiry, prices for memory are probably going to trend lower as new capacity comes online.
Micron is entirely correct about the paternalistic behavior of the Korean government, but the real problem is not just Hynix or even Korea. It is true that the Korean government does tend to ignore financial reality and allows its jumbled conglomerates wide latitude when it comes to financial reporting, but so do nations like Taiwan and China. Remember, for example, that Samsung once tried to get into the car market. No surprise then that the number one Korean DRAM producer will happily subsidize its loss-making memory business with profits from other product lines.
The political reality is that jobs come before profits in the Asia mercantilist societies, so don’t hold your breath waiting for Hynix to close its doors or for the Korean government to stop encouraging flat-out production of semiconductors. Like the Japanese before them, the Koreans believe that market share equals economic security, even if products like DRAM are sold below production cost. Western observers and Wall Street financial analysts may find such behavior irrational, but it makes perfect sense to an Asian politician in Seoul, Taipei or Beijing.
The bottom line: Companies that file trade complaints in Washington have usually lost the battle in the marketplace. MU does have a significant technical edge over Samsung and Hynix and therefore a cost advantage. With the Koreans and Taiwanese ramping up production of new DDR memory chips, we wonder how long any western-based producer of memory can stay in a market that is dominated by companies that are indifferent to price or profits, and just care about keeping the production line running 24/7.
As we have written about Infineon, we believe that it is a matter of time before MU is going to be forced to permanently cede the business of making commodity memory chips to the Asian manufacturers.