Micron Technology | Rebalancing portfolio

The U.S.-based memory chip maker, whose China operations face risks amid worsening bilateral ties, will set up a testing and packaging plant in Gujarat 

June 25, 2023 01:26 am | Updated 11:38 am IST

Micron was founded by a four-member team from Dallas in Texas, U.S.

Micron was founded by a four-member team from Dallas in Texas, U.S. | Photo Credit: Reuters

Micron Technology is an unusual tech giant. It does not have the signature Silicon Valley origin in which the founders start a company from a garage in California. The memory chip maker was incorporated 45 years ago in Idaho, a State that largely depended on agriculture and food processing industries at that time. The four-member founding team from Dallas, Texas, moved into a dentist’s basement in Boise, Idaho, with a goal to design the next gen memory chip.

The startup shipped its first 64K DRAM (Dynamic Random Access Memory) chip from its fabrication facility in Boise in 1981. Three years later, it unveiled the world’s smallest 256K DRAM chip, an industry milestone and a springboard for future efficiencies in memory devices.

Since then, the American semiconductor company has been revolutionising the memory storage devices industry through cutting-edge innovation and strategic business acquisitions. It synchronised and pre-defined cycles for data transfers with the Synchronous DRAM (SDRAM), and then introduced high-capacity, low power DRAMs for cell phones as mobile handhelds started to support multimedia besides voice and text features.

Micron also bought a part of Japan-based Toshiba’s DRAM business, and signed a deal with South Korea’s SK Hynix that would give the American company control over Hynix’s memory operations, including its chip design asset. Such deals marked a growing trend towards consolidation in the memory chip industry, making Micron one of the top three players alongside Samsung and SK Hynix. But during this time, its relationship with Boise started to change. It was investing in production facilities overseas, particularly in Asia. Within a span of five years, starting in 1998, it opened two production facilities in Singapore to test and package NAND flash memory. Its workforce in the city-state grew to almost a sixth of the company’s global workforce.

Semiconductor is a cyclical business that is prone to both high demand and supply glut. As a result, firms have had to cut costs to maintain profitability. One of the major costs is labour. And chip testing and packaging processes continue to be the most labour-intensive parts in chip production.

According to some estimates, a fifth of the cost of such a facility is labour. So, as Micron increased its presence in Asia, it was also cutting corners at the Boise facility with a series of layoffs. By 2009, it ended chip making in Boise, and in the years since, the campus has remained its headquarters and principal research and innovation centre.

China phase

Boise’s loss was Xi’an’s gain. Just two years before the end of production in Idaho, Micron announced plans to set up its first plant in China’s Xi’an to test and package DRAM, NAND flash memory chips, and CMOS image sensors. In China, the company got more than it bargained for. It was not just exporting products; it was also buying from the chip maker. By 2022, China had become an important market for Micron, accounting for about a tenth of its annual sales, which is a little over $3 billion.

Some estimates note that the company has a 25% market share in the country. But its market has taken a hit because of the tit-for-tat trade moves between Washington and Beijing. Most recently, in May, the Cyberspace Administration of China (CAC) banned operators of critical infrastructure in the country from buying Micron products, citing national security risks. Still Micron continues to invest in mainland China. On Friday, it committed to invest $603 million in the country.

But the hostility between the U.S. and China is making the memory chip maker rebalance its portfolio in Asia with a $2.7-billion semiconductor assembly and testing plant in India. To set up a testing and packaging plant in Gujarat, the company will get 50% fiscal support and an additional 20% in the form of incentives from the State government.

The company’s investments in India and China, however, pale in comparison to the Megafab facility it plans to build in Clay, New York. It will invest $100 billion over the next two decades to develop the plant. The new fab unit is part of the company’s strategy to increase U.S.-made DRAM production to 40% of its global output over the next decade. In the past two decades, Micron’s compass moved east as a result of globalisation and cost efficiencies. The next two decades could possibly bring the chip maker back to the West because of national interest.

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