Micron’s $6.14 Billion CHIPS Grant Will Support A Commodity Product

Micron’s $6.14 Billion CHIPS Grant Will Support A Commodity Product

Micron Technology Inc. headquarters in Boise, Idaho, US. Photographer: Jeremy Erickson/Bloomberg

© 2024 Bloomberg Finance LP

Micron Technology received a $6.14 billion CHIPS Act grant on Thursday, but unlike recent grant recipients Intel
, TSMC, and Samsung, it is in a commodity business. Like many other commodity businesses, production of memory chips largely moved to Asia decades ago. But memory is a strategically important product, and the fact that Micron is an American company and it is bringing high volume memory chip manufacturing back to the U.S. is highly significant and warrants closer examination.

What Makes Memory A Commodity

Semiconductor memory chips are ubiquitous. They are used in enormous volumes in personal computers, data center server computers, phones, and pretty much anything that has a microprocessor or any kind of intelligence because they are used to store both programs and data. While a computer might have just one or a handful of processor chips, it could have dozens, hundreds, or even more memory chips. Solid state drives – the SSDs that are increasingly replacing the disk storage in computers use them, the graphics system that display images on computer screens use them, and the main memory uses them.

Because they are so widely used, their packages are standardized. Organizations like the Joint Electron Device Engineering Council develop open standards for packages that all of the big memory chip makers conform to, because buyers of memory chips want to be able to use suppliers interchangeably. Hence competition is based on:

  • Price. When you are buying a lot of chips, small differences in price multiplied by huge volumes translate into big dollars. Buyers are very price sensitive.
  • Chip capacity. The more data a manufacturer can store in a chip occupying the same physical space, the better. This is particularly important in applications like phones and tablets, but also for ultrathin PCs or anywhere space is at a premium.
  • Performance. How fast chips can be read and written to is very important. Very often the bottleneck in a computing system’s performance is the memory bandwidth, how fast data and programs can be read into and out of memory chips. AI and machine learning chips process huge amounts of data, so being able to read and write faster with high bandwidth memory chips is all the rage these days.
  • Power efficiency. Keeping power consumption low is important in portable devices that use memory, as well as data center servers that use huge numbers of memory chips.

So the big three memory manufacturers, Samsung, SK Hynix, and Micron compete fiercely on technical innovations and cost. Their customers, companies like Apple
, Dell, Amazon
, and Microsoft
pit them against each other and happily switch suppliers based on the smallest of differences. This is a tough enough business just for those reasons, but there’s more.

A Micron HBM3E module made at its plant in Taichung, Taiwan. Photographer: Annabelle Chih/Bloomberg

© 2023 Bloomberg Finance LP

What Makes The Memory Business Really Challenging

The memory business is highly capital intensive. Manufacturers need the same kinds of expensive tools that the logic chip makers need, but since the profit margins are thinner and it is such a competitive business, they need to keep their factories (fabs) full and highly utilized. If your fab isn’t running full tilt, you have less output to spread your high fixed costs and depreciation over. And in this extremely competitive space, that’s a killer.

On top of that, this is a cyclical business that goes through regular boom and bust cycles. Periods of high demand and tight availability are inevitably followed by oversupply and collapsing prices. Last fall Samsung’s mere 13 percent drop in earnings was considered an improvement over the 95 percent fall the previous quarter as people waited for the market to hit bottom. What this means is that if you are going to add new capacity, you have to time it to these market cycles or risk getting crushed by underutilization of expensive fabs. Memory chips are not a business for the faint of heart.

Micron Has Impressive Capabilities

It should be a surprise that an American company based in Boise, Idaho has survived in this cyclical commodity business that saw Intel, Texas Instruments
Texas Instruments
, Motorola, Mostek, and all its other domestic compatriots leave decades ago. It was Japanese memory chip manufacturers who drove American companies to the wall in the 1980s. That was our first great national semiconductor crisis. But Micron has managed to survive, and it has built impressive capabilities in the process.

Micron rolled up what remained of the Japanese memory business by acquiring bankrupt Elpida Memory in 2012, and through that also consolidated some production facilities in Taiwan. Most of its production is in Asia, just like Samsung and SK Hynix.

But Micron has an impressive R&D capability in Boise, which I had the opportunity to visit last August. It has a world class R&D fab, one of the nicest I’ve seen. It also has a mask-making capability, which is in short supply in the U.S. And its masks are very challenging because the company is using them for 3D stacked memory chips, which requires great precision.

In The Memory Business, Timing Is Everything

In the memory business, when you bring a fab on stream is critical. You would like to add capacity at the beginning of an up cycle, and try to make as much money as you can before the next down cycle. So it’s not a surprise that construction in New York is progressing slowly. Micron broke ground on a leading edge fab in Boise in 2022. When I visited, there was a daily explosion late in the afternoon as contractors dynamited some of the volcanic lava tubes near the site. That added a lot of local color to the visit.

The CHIPS grant will support both the Boise site and the first two fabs in Clay, New York north of Syracuse. The Clay site is slated to be one of the largest fab complexes in the country. Making memory chips there instead of just expanding more in Asia is quite a bold move. While a $6.14 billion grant, the Investment Tax Credit, and assistance from the State of New York will all help, this is still pretty courageous.

Micron Has Been Investing Heavily In Workforce Development

President Biden will be in New York for the announcement. Even though there hasn’t been much construction in the area yet, Micron has already been working hard on workforce development. A year ago it announced the Northeast University Semiconductor Network along with 21 partners to aid in the development of a capable workforce. This is of course one of the Administration’s priorities. But Micron is planning ahead, and seems pretty confident that it can make this work.

Most of the attention on CHIPS grants has been paid to the logic manufacturers, but memory is an important and strategic commodity especially in the age of AI. Having a large domestic production capability after decades of so little to show is an impressive turnaround, especially in a segment that is as challenging as it is. We should pay more attention to Micron.

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