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Interview

Micron says emerging Chinese rivals pose no threat -- for now

US chipmaker taps AI and smart tech to keep plants running amid pandemic

U.S. memory chip maker Micron Technology is confident it can fend of Chinese rivals for the time being.    © Reuters

TAIPEI -- Micron Technology is confident that its Chinese rivals will not be able to challenge the largest U.S. memory chipmaker anytime soon, despite Beijing's efforts to cut reliance on foreign chip suppliers, a senior executive at the American company told Nikkei Asia in an exclusive interview.

Manish Bhatia, Micron's executive vice president, said that even with "deep pockets" it will take time for Chinese newcomers to make a significant impact on the global memory chip market, but stressed that his company takes all competition seriously and is paying close attention to the progresses of emerging Chinese competitors.

"Micron has more than 40 years of experience building fabs [chip facilities], building technology roadmaps, getting to high yield, low density, high quality, high reliability, high performance, low cost," Bhatia told Nikkei Asia on Monday. "It's not easy to replicate overnight."

Chinese newcomers, moreover, "have to keep up with the rest of the industry, and it's not a standstill target but a moving target. So even if they get something working, they've got to catch up. That's the challenge to enter a market, even when you have deep pockets."

Bhatia's remarks come as the U.S.-China tech war is heating up: While Beijing is throwing its support behind homegrown chipmakers like Yangtze Memory Technologies, the country's first 3D NAND flash chipmaker, to replace foreign suppliers, Micron has been forced to suspend ties with its largest Chinese customer, Huawei Technologies. Huawei, the world's biggest telecom equipment provider, is the target of an ongoing crackdown by Washington, which views the company as a security threat.

Micron Technology Executive Vice President Manish Bhatia says his company remains committed to the Chinese market despite Washington's crackdown on Huawei.

Micron recently told investors that it had applied for a license to ship to Huawei after Washington's latest tightening of export restrictions on the Chinese company. Samsung Electronics, SK Hynix, Sony and Kioxia, formally known as Toshiba Memory, as well as Taiwanese mobile chipmaker Mediatek all said they have applied for licenses to continue some business with Huawei. So far, only Intel and AMD, the world's two top makers of PC and server microprocessors, have publicly confirmed they have been granted licenses by the U.S. government, but neither disclosed which products those licenses cover.

Micron had not heard whether its license application had been approved or rejected as of Monday, but Bhatia said the company remains committed to serving its China-based customers, which account for around 20% of its revenue. Micron also has manufacturing and R&D capabilities in the country and has "always wanted to support the Chinese ecosystem," he added.

"We are continuing to be engaged with them not just today, but on roadmaps for tomorrow and helping them to meet their product requirements for the future," the executive said.

Micron is the world's third-largest maker of dynamic random access memory, or DRAM, after Samsung Electronics and SK Hynix of South Korea, and it is the No.4 player in NAND flash memory, trailing Samsung, Japan's Kioxia, and Western Digital of the U.S. Both DRAM and NAND flash are critical memory components widely used in almost all electronics devices.

Though Washington-Beijing tensions and the coronavirus pandemic have created uncertainty for the company, Micron's financial performance has remained resilient and it has not had to completely halt production for even one day since the coronavirus outbreak. The only place where production was affected was Malaysia, where Micron lowered the production level in its chip packaging and testing facility due to a government order. Micron reported a 24% growth in revenue on the year and an 80% increase in net profit for the three months ending Sept. 3. However, it expects to feel the impact of the tighter U.S. restrictions on Huawei in the current and next quarters.

Micron attributed its ability to maintain production levels to years of introducing artificial intelligence and machine learning into its manufacturing sites, as well as to its deployment of safety measures in its Asian and U.S. facilities as soon as Beijing ordered the lockdown of the Chinese city of Wuhan following the outbreak of the coronavirus in late January. Micron's most important DRAM chip production bases are in Taiwan and Japan, while Singapore is its most significant NAND production base.

"If China was scared enough that they felt they needed to lock Wuhan down, that was enough for me to trigger and say we need to be focused on this, not just in China, but all of Asia," Bhatia told Nikkei Asia. "We implemented all these measures across all of our sites in Asia and even in the U.S., eventually. I don't think anybody predicted it would become a bad and a full global pandemic like it has become."

In late January, Micron began monitoring the temperatures of everyone entering its facilities, split workers into "red" and "blue" teams to minimize contact, and reduced the number of visitors to the sites, Bhatia said. The memory chipmaker even split operations at its fab facilities around the world in two to ensure production would not be disrupted if someone contracted the virus. "Fortunately, we never had anything happen like that."

The pandemic also prompted Micron to accelerate its adoption of new technologies -- from virtual and augmented reality headsets to AI, machine learning and big data analysis -- to keep its global facilities up and running remotely when engineers and technicians from equipment suppliers like Applied Materials and ASML could not travel across borders.

The implementation of AI has helped Micron achieve "a 30 % reduction in unplanned downtime of our equipment, a 40% reduction in low product yield events, and a 20% improvement in our yield learning curve," Bhatia said.

Micron foresees uncertainty in the next two quarters, both for itself and its peers, due to the latest U.S. ban on Huawei, which forced all suppliers to suspend unlicensed shipments to the Chinese tech giant. But Bhatia said Micron expects demand for memory chips for data centers to remain healthy thanks to the rise of remote working, while the smartphone and automobile industries are also showing improving demand driven by the introduction of 5G networks.

"We're very well-positioned for a 5G recovery with so many mobile phone customers. We're diversified through almost every mobile phone customer except Huawei. So [we are] really doing a good job of being positioned to succeed and benefit as 5G ramps up," Bhatia said.

Micron predicted 5G smartphone shipments will more than double to 500 million units in 2021, from around 200 million units this year. Bhatia described this as just the beginning of the 5G revolution, which will drive further innovation and demand for memory chips.

A challenge that Micron is still grappling with is how to offset the impact of the Huawei ban, Bhatia said.

"The risk is really around timing. ... This last calendar fourth quarter, we have to deal with not being able to ship to Huawei. We have to figure out how to realign our supply ... We have to figure out how long this works out," he said, adding that it takes time to achieve a balance of supply and demand. "But as we go through the calendar year 2021, we expect to see an economic recovery."

Avril Wu, an analyst with Trendforce, said the biggest uncertainty is whether the global pandemic can be contained. If it is not, the outbreak will eventually impact electronics demand as well as the memory chip market.

"The DRAM memory market will still be stable and we foresee recovery from next year, while NAND flash memories will suffer more as there are more players in the world making such memory chips," Wu said. "We foresee China's Yangtze Memory, the country's top NAND flash memory maker, could become a real challenger that could start to have an influence on market supply from 2021."

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