Micron vs. China: A battle hitting America’s heartland

Micron Technology is fighting back after the People’s Court of the Republic of China ruled that the U.S. chipmaker had infringed on Taiwan’s United Microelectronics Corp – more commonly known as UMC –  patents.

Despite issuing a temporary ban on 26 Micron products covering the range of DRAM and NAND flash memory products, Micron on Thursday said it will only affect fourth-quarter revenue by just 1%. Even though 50% of its revenue comes from China, Micron has deep roots in America’s heartland, including Boise, Idaho which is home to 20,000 Micron workers and the location of the company’s headquarters. 

While Micron shares rallied on the news, the battle is far from over and paints a more sinister picture of the cutthroat world of semiconductors.

Ticker Security Last Change Change %
MU MICRON TECHNOLOGY INC. 68.88 +0.98 +1.44%
QQQ INVESCO QQQ NASDAQ 100 357.91 +0.05 +0.01%

Micron has long been coveted by China to power the grand ambitions of “Made in China 2025.” In 2015, Chinese state-owned Tsinghua offered $23 billion for the company. The bid was rebuffed mostly because management didn’t want to sell, but also due to the belief it would never pass the Committee on Foreign Investment in the United States [CFIUS] scrutiny.

Thereafter, there were allegations China resorted to stealing the technologies it desired and that UMC was a key partner in that theft. There have been break-ins and luring of Micron engineers with fat job offers in return for stolen technology. UMC has deep roots in China that has yielded great profits. In the first quarter of 2018, UMC profits surged 48% in part due to tax breaks in Taiwan, but also because of China subsidies for UMC arms Hejian Technology and Xiamen Fabricating Co.

The latest legal wrangling between Micron and China is not the first. The U.S. chipmaker has filed lawsuits against UMC and China-based Fujian Jinhua Integrated Circuit, which hired UMC to help it build a $5.7 billion factory. UMC countered with a lawsuit in the People’s Court of the Republic of China, making claims of intellectual property theft by Micron. 

In June, Idaho received some backing from the state’s Republican senators, Mike Crapo and Jim Risch, who sent a letter to President Trump, as reported by The New York Times, expressing concern about this sham case which was speeding through the court system and UMC’s request that Micron be barred from selling products in China.

The Micron news goes beyond rhetoric. This action is a haymaker from China. It also follows UMC’s plans to take its China operations public on the Shanghai Stock Exchange in efforts to raise $380 million. 

As Micron claws back some of the $3 billion market capitalization it lost on Tuesday, the gains could be temporary. China has the power to knock-off tens of billions in overall capitalization in computer chipmakers and other technology niches, when it doesn’t play fair. Making the retaliatory tariffs by the EU and Canada look miniscule.

If China won’t concede on its history of brazen IP theft, this trade skirmish could blossom into a worst-case scenario.

Charles Payne is the host of 'Making Money with Charles Payne' (weekdays 6-7 PM/ET)