Wednesday, July 15, 2015

Stock Talk - China's bid for Micron (cont'd)

Yesterday we talked about a Chinese firm's bid for Micron. We've read further on the subject and have concluded that this is not a serious offer but a trial balloon. For one thing, it is much too low, and if the rules of the acquisition game demand a starting low bid, this one is foolish.

Then what does China have in mind? Here's one guess: It's the opening salvo in an attempt to wrest semiconductor technology from the U.S. A lot of this technology is now in Asia, but not enough to tilt the scales. Take semiconductor equipment. Applied Materials is king of the hill, and its attempt to merge with Tokyo Electron was scotched last year because of likely hostility from the U.S. government (on antitrust, not security grounds). Then there's KLA and Teradyne and several other medium-sized companies that possess critical technology.

Let's suppose China made overtures to several of these companies. Then the U.S. would be left with a conundrum: Do we stiff them all, declaring economic warfare on China and inviting retaliation? Or do we succumb meekly? Globalism is a game we're not good at, despite President Obama's efforts in Cuba and Iran.

Watch the stocks of the U.S. semiconductor and equipment companies closely in coming weeks. And watch Advantest, a Japanese equipment company that has been beaten down lately, for signs of buying. If the Chinese are trying to corner the market in semiconductor technology, the equipment manufacturers' stocks are where their fingerprints should be visible.

Of course, the folks in Washington may prefer economic warfare to diplomacy. As the presidential campaign heats up, expect a bitter battle between the hawks and doves. It should make interesting reading - if it weren't so doggone serious.

Tuesday, July 14, 2015

Stock Talk - China's Bid to Buy Micron

A bombshell burst upon the market today, A Chinese company declared its intention to buy Micron, a large U.S. semiconductor manufacturer and one of the world leaders in memories, including flash chips. Of course there will be security hurdles to handle, and this government will presumably object, citing the strategic importance of semiconductor devices. Chances of a successful merger must be regarded as a 50-50 proposition at best.

As a song from Shenandoah goes, "I've heard it all before." Decades ago, it was Japanese companies that were the threat. I was on a industry committee in Washington charged with manning the ramparts. I was also on the Board of Directors of SEMI, a trade organization for the Semiconductor Equipment and Materials industry, and the subject of many meetings in Washington and Silicon Valley was "What do we do to protect our leadership in semiconductors?"

I remember one meeting when an assistant secretary of defense argued that the fate of the free world depended on our cooperation in depriving the USSR of our test systems.

"They can't even make light bulbs, let alone 64K memories," I said, "because their economic system is so screwed up. You guys should be hoping that they don't catch on to capitalism."

The Chinese, capitalists to their fingernails, have figured it out, and they are coming after us in ways the Russians and the Japanese never learned. What chance has the U.S., with 4% of the world's population, have to compete in the long haul? Information flows instantly, especially via social media, and the days of "keeping secrets" are gone forever.

Let's say the politicians are successful in convincing the Chinese that they would be better off developing their own memory technology and leaving Micron alone. How long do you think it would be before the Chinese find ways of throttling U.S. companies seeking to sell in China?

It's a tough world out there, and our only hope is a dash of what Kissinger called triangular diplomacy. We must make up our minds: Do we want to make nice with Russia or China? With a partnership with either, we have a chance.

As we enter the presidential campaign, the candidates should consider the alternatives.

Monday, July 13, 2015

Stock Talk - New Tech vs Old Tech

One of the more interesting competitions going on these days is the battle being waged for investors' dollars by old-tech companies (Microsoft, Intel, Texas Instruments, etc) and new-tech shooting stars (GoPro, Facebook, Fitbit, etc). It should be obvious that the new companies are almost all in the software or social media area, while "old tech" patrols the corridors of semiconductors and the "things" of technology. There are exceptions, of course, but that will do for a start.

This may be a false competition. If you talk about hardware, you have to talk about China. The other day I had a close-up look at a drone made by a Chinese company, DJI. Considering the technology and (especially) the price, it's hard to see how any U.S. company could compete. But in software, where facility with the English language is often important, U.S. companies are the leaders. Companies that combine hardware and software skills (Apple) are especially powerful.

There was a time when U.S. companies like Digital Equipment, IBM, and Hewlett-Packard were supreme, but those days are gone. Books could be written (and have been) about the causes of their collapse, but where is it written that the U.S., with 4% of the world's population, must have the lion's share of technology?

Back to the old-tech/new-tech competition. It is up to old-tech companies to adapt; that's obvious. Those that pull it off (the new CEO at Microsoft looks promising) will do well. H-P, on the other hand, has not found its way. Certainly the hiring of outsiders as CEOs at H-P is dispiriting.

Semiconductors, the heart of all the gadgets we know and love so well, are a question mark. If one were a betting man, one would say that the equipment to make semiconductors and the chips themselves themselves will move to Asia, and the best the U.S. leaders (Applied Materials, KLA-Tencor, etc) can hope for are partnerships with Asian forms. Of course, that takes political leadership, and if the Washington gurus insist on taking a "muscular" line with both China and Russia, all bets are off.

I will say more about the high-tech market in future posts.