Washington's Chip Dreams May Need Wall Street's Help
(Bloomberg Opinion) -- If the United States is to regain its position in the global semiconductor industry, it may need help from bankers as much as engineers.
Intel Corp.’s bold new plan to expand capacity and get into the foundry business, as well as Taiwan Semiconductor Manufacturing Co.’s pledge to build a new fab in Arizona, are both welcome news. That’s particularly the case in Washington D.C., where the administration and lawmakers have been drumming up plans to retake the lead amid growing competition from Beijing. But such piecemeal factory projects probably won’t be enough to elevate the nation’s share of global manufacturing capacity, which currently stands at fifth behind Taiwan, South Korea, China and Japan.
That’s where Wall Street can play its part. The possible takeover of Japan’s Kioxia Holdings Corp. is precisely the kind of move that U.S. business and political leaders should get behind. Boise-based Micron Technology Inc., the country’s largest maker of memory chips, and Western Digital Corp., a leader in storage and hard drives, are both exploring the idea of buying the company, the Wall Street Journal reported this week. A subsequent report from Bloomberg News suggested the target would rather list its shares than be acquired, indicating that a buy out by either foreign firm won’t come easy.
These look like competing deals and, if either is pulled off, could value what was formerly Toshiba Memory Corp. at around $30 billion, the WSJ wrote. A tie-up could also give either buyer an extra 20% of the market for chips used to store data. It would be a rare procurement of semiconductor manufacturing capacity in an industry where the $300 billion in chipmaker acquisitions over the past decade have been chiefly among fabless design companies.
It’s important to note that buying a foreign chipmaker doesn’t automatically bring capacity back home. Kioxia and Western Digital, for example, just announced the expansion of their joint facilities in central Japan’s Yokkaichi city. But doing so would bring more of global supply under nominal control of U.S. companies.
Having American firms own more of the worldwide capacity isn’t just window dressing. The administration arguably has more leverage over U.S. firms than it does over foreign companies, which could pay dividends as President Joe Biden continues his predecessor’s policy of luring the tech supply chain back home. Both Micron and Intel have significant amounts of manufacturing overseas, diluting any argument they may attempt to make about favoring made-in-America policies. With the possibility of Tokyo objecting to the takeover, diplomatic maneuvering may also come into play.
But these U.S. firms are not beyond flag-waving either, Intel Chief Executive Officer Pat Gelsinger’s March 23 presentation announcing the California company’s move into made-to-order foundries appeared an exercise in patriotism. It looked as much like he was addressing Washington as he was shareholders and employees.
Should either Micron or Western Digital successfully buy out Kioxia, we could expect the winning bidder to stuff its announcement with references to U.S. manufacturing and supply chain security. A call to D.C., and state capitals, asking for incentives would likely follow.
To get there, though, deals need to be sourced and funding secured. With the world awash with cash, and both debt and equity easily obtained, bankers are in a position to make politicians’ chip dreams come true.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.
©2021 Bloomberg L.P.