Micron, Blackstone, China and the DRAM world

Putting together rumors can be a wonderful pastime. For instance, consider the following facts and rumors, all unrelated, that have passed over the wires in the last few days.

First, there’s the fact that the People’s Republic of China has decided to invest $3 billion—a tiny fraction of its foreign exchange reserves—in the IPO of Blackstone Group, a private equity investment company. (See, for instance, here.) By itself, this appears innocuous, particularly since the Chinese have chosen to purchase non-voting shares, apparently to reduce any concerns about the influence they might obtain over Blackstone’s investment decisions. It’s just about diversifying that huge reserve out of US Treasuries and improving the yield, of course.

Second, there comes a report from always-worth-watching iSuppli that Korea, Inc. may be about to lose their dominance in the global DRAM market to the PRC. No particular connection between these two tidbits, of course.

Third, along comes the rumor over the weekend that Micron Technology—a major player in DRAMs—is considering signs of interest from the private equity world, including—you guessed it—Blackstone.

Does all this add up to a smoking gun? Of course not. But it does make a point about the global semiconductor industry, national industrial policies, and how we are used to thinking about the future.

We tend to forecast shifts in technology based on technical parameters. Ask, for instance, if China can dominate in the SoC market, and our initial response would be to look at their available 300mm wafer capacity, their experience with 65nm process technology and their ability to attract that small inner circle of designers who have experience with advanced SoC design. We’d weigh the parameters and say “No, there’s not much chance of them becoming a leading-edge supplier any time soon.”

But we’d be wrong. The right questions aren’t about technology or proprietary design skills. Both can be bought. The right questions are about national industrial policy and purchasing power. The combination of huge accumulations of foreign exchange surpluses in a few countries, plus the emergence of private equity funds large enough to make a credible offer for virtually any US public company, plus the simultaneous emergence of hedge funds powerful enough to cause significant short-term movements in a company’s market capitalization, has changed everything.

It is now possible for a wealthy country, working through a Sovereign Wealth Fund, to purchase a position either in a group of private equity funds, or in the companies that manage these funds, that would give the country virtual operating control over pretty much any US technology company. The same SWF could use positions in hedge funds to facilitate such transactions. That could happen in the DRAM market. It could happen in the specialty foundry business, and it could happen in the inner sanctum of US innovation, the EDA and Fabless Semiconductor companies. It’s a new ballgame.