Micron’s business is threatened by new Chinese made DRAM

Micron layoffs
Image: Quentin Sokolow / The Burn-In

Last week, The Burn-In reported Micron had been quietly cutting staff in its flagship plant. The firm, like the rest of the industry, has been reeling from the effects of the U.S.-China trade war and global semiconductor sector slowdown.

As bad as Micron’s situation is now, a new Motley Fool post indicates it’s going to get even worse. In response to current global tensions, two Chinese firms will begin producing memory chips for their domestic market.

The New Chinese Memory Chip Makers

First off, Changxin Memory Technologies recently announced plans to begin producing DRAM chipsets. However, to escape the Trump administration’s restrictions, the firm is using designs created by a defunct German semiconductor manufacturer. While the corporation is currently only planning to produce 10,000 chips a month, it’s also investing $8 billion in its new business.

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By comparison, Micron previously announced that it would be spending $9 billion on DRAM production this year.

Yangtze Memory Technologies, a state-owned tech corporation, recently revealed plans to begin mass-producing NAND chips this year. The company also intends to fabricate 60,000 64-layer 3-D flash chips a month in 2020. Furthermore, the firm plans to start supplying Chinese companies with 128-layer NAND chips as soon as next year.

Why the Developments Will Hurt Micron

Regardless of nationality, any large companies looking to break into the memory chip business right now would hurt Micron. Motley Fool reports that the Idaho-based firm saw its revenues decline from $8.4 billion in Q4 2018 to 5.8 billion in Q4 2019. But Changxin and Yangtze’s planned offerings spell more trouble for the world’s third largest DRAM and NAND manufacturer.

The corporation incurred steep revenue shortfalls for two reasons. One, the components market is currently flooded with low-cost DRAM and NAND chips. As it happens, 95 percent of the firm’s revenue comes from selling those particular semiconductors. And two, Huawei represented 13 percent of the company’s income until the federal government blacklisted the Chinese electronics company in May.

As the Sino-American trade war shows no signs of de-escalating, Micron is unlikely to reestablish relations with one of its biggest clients anytime soon. Consequently, market analysts forecast the corporation will experience a 23 to 47 percent revenue decline for 2019.

Recently, the banking investment advisory company Evercore predicted the semiconductor sector would rebound in mid-2020. However, given Micron’s lack of product diversity and dependence on Chinese money, the manufacturer might not be around to see it.