Posts Tagged ‘Western Digital’

China is stumbling hard at acquiring the high-tech chip companies it wants so badly

September 16, 2017
 

September 14, 2017

US president Donald Trump yesterday (Sept. 13) vetoed a Chinese private-equity firm’s proposed $1.3 billion purchase of Lattice Semiconductor, an Oregon-based chip manufacturer.

The deal’s failure marks the latest instance where foreign governments have pushed back against China’s efforts to acquire technology assets in their country, as China invests heavily in hardware and software companies at home and abroad.

The semiconductor industry in particular has been a focus of China’s ambitions, as chips are the brains of nearly every electronic device. But as of 2014, China still imported 90% of its semiconductors. As a result, the country has gone on a spending spree, buying up semiconductor companies all over the world.

Many of these deals have fallen through, however, due to pressure from the Committee on Foreign Investment in the United States (CFIUS), an inter-agency branch of the Treasury that examines foreign purchases of domestic companies and assesses their potential impact on national security. While CFIUS does not “block” deals outright, it can make “recommendations” to both parties involved that the deal ought to be terminated. If necessary, CFIUS will refer cases to the president, who then holds the power to veto the deals—which is what happened with Lattice.

Lattice marks the seventh such major deal that has collapsed since mid-2015, and it’s the second to be vetoed by the US president within that period. This list shows just how badly China is failing at acquiring foreign semiconductor technology.

Micron

The largest attempted Chinese takeover of a US semiconductor maker began in July 2015, when media revealed that Tsinghua Unigroup, a state-affiliated Chinese chipmaker with ties to with Tsinghua University in Beijing, wanted to buy Idaho-based Micron. Tsinghua Unigroup reportedly had put up $23 billion (paywall) to purchase the company.

Micron made it clear it was cold on the deal from the get-go. Just days after Tsinghua Unigroup’s bid hit news outlets, a source at Micron told Reuters the deal was likely not possible as CFIUS would probably recommend against it. In August that year, senator Chuck Schumer, a frequent critic of China, directly called on CFIUS to formally investigatethe potential acquisition.

But the deal didn’t even get that far. Despite reports that Tsinghua’s chairman travelled to the US to talk to Micron, no further details about a deal emerged until November 2016, when Tsinghua confirmed it was not in any talks with the Idaho company.

Had both sides reached an agreement, the deal would have carried historic implications for the US tech industry. Micron to this day remains the last major US-based manufacturer of DRAM flash memory, a critical component in nearly all consumer electronic devices. Its American rivals all ceded ground to competitors in Japan, Korea, and Taiwan.

Fairchild Semiconductor

In December 2015, state-affiliated conglomerate China Resources Holdings made an unsolicited offer to purchase Fairchild Semiconductor, one of the oldest companies in Silicon Valley. The Chinese investors proposed paying $2.5 billion for the company, equivalent to $21.70 per share, a premium over what rival bidder, US-based On Semiconductor, had offered earlier. The Chinese suitors also offered a $108 million reverse termination fee in the event that CFIUS recommended against the purchase.

Despite the markup and the guarantee, Fairchild refused the offer in February 2016, stating that the deal presented an “unacceptable level of risk” of failing should it ever reach CFIUS. It ended up being sold to On Semiconductor in September 2016.

Lumiled

In March 2015, Dutch electronics giant Philips, which is also listed in the US, announced it intended to sell an 80% stake in Lumiled, a subsidiary that manufactures LEDs (light-emitting diodes), a semiconductor, to a Chinese consortium known as GO Scale Capital for $3.3 billion. In October, however, the company stated in its latest earnings report that CFIUS had “expressed certain unforeseen concerns” towards the deal, which could ultimately kill it.

The bid was dead by January 2016. “I am very disappointed about this outcome as this was a very good deal for both Lumileds and the GO Scale Capital-led consortium,” said Philips CEO Frans van Houten. While LEDs are generally associated with lighting, according to the New York Times, CFIUS held concerns that the gallium nitride used to make the components could also be used by China’s military (paywall). Philips eventually agreed to sell Lumiled to US-based private-equity firm Apollo Global Management in December 2016, at a discounted price of $2 billion.

Western Digital

In September 2015 Tsinghua Unisplendour, owned by the same parent as Tsinghua Unigroup, announced it intended to pay $3.78 billion for a 15% stake in Western Digital, the semiconductor maker best known for its hard-disk drive business. The company told investors it did not expect the deal to be subject to a CFIUS review because the stake was non-controlling. But in February 2016 Tsinghua backed out of the deal(paywall) once it became clear that a probe was indeed forthcoming. The two companies’ relationship didn’t end there, however. In September 2016 Western Digital and Tsinghua Unisplendour announced they had formed a China-based joint venture with Tsinghua as the majority shareholder.

GCS

In March 2016, California-based, Taiwan-listed semiconductor maker GCS announced it was in talks to be purchased by Sanan Optoelectronics, a Chinese maker of LED wafers and solar cells, for $226 million. In August, GCS confirmed that the deal had fallen through due to pressure from CFIUS. The body did not state its specific objections, but they likely stemmed from GCS’s contracts with the US military. Like Western Digital, GCS opted to form a joint venture with its Chinese suitor as an alternative.

Aixtron

In May 2016 China’s Fujian Grand Chip announced it had agreed to buy Germany’s Aixtron, a maker of semiconductor manufacturing equipment, for $752 million. In November, Aixtron announced that CFIUS told both parties there were “unresolved U.S. national security concerns regarding the proposed transaction.” Rather than kill the deal, Aixtron and Fujian Grand Chip said they would appeal the recommendation directly to president Barack Obama—who sided with CFIUS. The White House said that there was “credible evidence” that Fujian Grand Chip “might take action that threatens to impair the national security of the United States.” The process—a CFIUS warning, an appeal to the president, and then a veto–was the same process that led to the collapse of the Lattice deal.

China is stumbling hard at acquiring the high-tech chip companies it wants so badly

Read next: A fund linked to the tech deal Trump just vetoed is an investor in China’s national security

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High-Dividend Stocks Push US Indexes to Record Highs

December 7, 2016

NEW YORK — U.S. stocks are rallying Wednesday, keeping major indexes at record highs. Bond yields are falling, and investors seeking income are buying stocks that pay large dividends, like real estate investment trusts. Stocks that do better in times of faster economic growth, like technology companies, are also climbing. Health care companies are taking steep losses after President-elect Donald Trump said he wants to reduce drug prices.

KEEPING SCORE: The Dow Jones industrial average added 178 points, or 0.9 percent, to 19,431 as of 1:30 p.m. Eastern time. The Standard & Poor’s 500 index picked up 15 points, or 0.7 percent, to 2,227. The Nasdaq composite recovered from an early loss to rise 26 points, or 0.5 percent, to 5,358, and remains below its all-time high. Sharp drops in big biotechnology companies like Celgene were holding back the Nasdaq’s gains.

RECORD RECAP: The Dow closed at a record high on Tuesday. So did the Russell 2000, an index of smaller companies. The Russell recovered from an early loss to gain 9 points, or 0.6 percent. The S&P 500 set its latest record on Nov. 25.

BONDS: U.S. government bond prices rose, sending yields lower. The yield on the 10-year Treasury note fell to 2.34 percent from 2.39 percent. Bond yields have risen sharply this year but have slipped in the last few days. That’s helped stocks that are seen as bond substitutes, like real estate investment trusts. Their big dividends are attractive to investors who want income, so when bond yields fall, investors often turn to those stocks. Industrial real estate company Prologis rose $1.31, or 2.6 percent, to $52.01 and electricity and natural gas company Exelon added 43 cents, or 1.3 percent, to $33.48.

LEADERS: Companies that stand to benefit from faster economic growth also climbed. Home improvement retailer Lowe’s rose $2.59, or 3.6 percent, to $75.05 and Nike gained 95 cents, or 1.9 percent, to $51.52. Technology companies also outperformed the market. IBM rose $2.49, or 1.6 percent, to $162.84 and HP added 35 cents, or 2.2 percent, to $15.95.

WILD WESTERN: Hard drive maker Western Digital climbed $4.83, or 7.6 percent, to $68.68 after it extended a patient licensing deal with Samsung. The new deal will last until the end of 2024. Western Digital raised its revenue outlook after making the announcement.

TRUMP THUMPS HEALTH STOCKS: In an interview with Time magazine, which named him Person of the Year, the president-elect said he wants to reduce drug prices. He did not say how his administration plans to do that. Democratic nominee Hillary Clinton campaigned on reducing drug prices, and drug company stocks had rallied since the election as investors felt that was less likely to happen under Trump.

The Nasdaq biotechnology index tumbled 3.1 percent, as those companies make costly medications and might stand to lose the most under tighter price regulations. Elsewhere, Pfizer gave up 66 cents, or 2.1 percent, to $30.90 and Johnson & Johnson fell $1.89, or 1.7 percent, to $110.17. Drug distributor McKesson sank $3.93, or 2.7 percent, to $141.47. Companies that make medical device and equipment also slid.

GAME ON: Dave & Buster’s Entertainment, which owns a chain of restaurants and arcades, reported a bigger profit and higher sales than analysts had expected. The company also raised its forecasts for the year. Its stock jumped $8.25, or 17.2 percent, to $56.25.

STEEL DEAL: AK Steel said it will raise base prices for all of its stainless steel products starting Jan. 1. The company’s stock gained 49 cents, or 4.6 percent, to $11.04. U.S. Steel rose $2.03 ,or 5.6 percent, to $37.98.

BAGGED: Handbag and accessories maker Vera Bradley sank after it posted weak results and issued a disappointing outlook for the current quarter. Its stock shed $1.04, or 7.12percent, to $13.63.

ENERGY: Benchmark U.S. crude lost 68 cents, or 1.3 percent, to $50.25 a barrel in New York. Brent crude, the international standard, slid 48 cents to $53.45 a barrel in London.

EUROPE STIMULUS: European stock indexes jumped as investors anticipated that the European Central Bank will extend its bond-buying stimulus program Thursday. The stimulus is designed to boost growth and inflation. European stock indexes climbed. Germany’s DAX gained 2 percent and the FTSE 100 in Britain rose 1.8 percent. The CAC 40 of France picked up 1.4 percent.

CURRENCIES: The dollar slipped to 113.71 yen from 114.05 yen. The euro rose to $1.0753 from $1.0715.

ASIAN MARKETS: Japan’s benchmark Nikkei 225 rose 0.7 percent and the South Korean Kospi inched up 0.1 percent. The Hang Seng in Hong Kong gained 0.5 percent.

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AP Markets Writer Marley Jay can be reached at http://twitter.com/MarleyJayAP His work can be found at http://bigstory.ap.org/journalist/marley-jay