Despite a China ban and smartphone slump, Micron is constructing the largest chip factory in U.S. history.

Devices rely on memory chips to store and retrieve data, including smartphones, computers, and servers used for training AI models.

The world's DRAM chips are dominated by just three companies, with Samsung and both being headquartered in South Korea. Among these, only Micron, based in Idaho, is a U.S. manufacturer that has recently become the latest target of China's ban on U.S. technologies.

Micron CEO Sanjay Mehrotra stated in an interview with CNBC that approximately half of the revenue generated in China accounts for a quarter of Micron's total revenue, putting it at risk.

Micron is investing $15 billion in a new chip fabrication plant in Boise, Idaho, to bring advanced memory production to the U.S. starting in 2026, as it aims to double down on U.S. manufacturing. The company currently produces its leading-edge chips in Japan and Taiwan, but it is looking to shift production to the U.S. with the new fab. Micron celebrated its 45th anniversary in October by pouring the first cement at the new fab.

Near Micron's expansive research and development facility, CNBC received an exclusive behind-the-scenes tour.

To meet market demands, we need to mass produce our chips at a cost-effective scale, as memory is highly sensitive to costs, according to Scott Gatzemeier, Micron's corporate vice president of front-end U.S. expansion.

While DRAM and NAND memory chips are less expensive than high-performance central processing units (CPUs) and graphics processing units (GPUs), which contributed to their growth, multiple memory chips are necessary to support each GPU or CPU. As a result, memory production requires more fabrication space.

Micron is investing $100 billion over 20 years to construct four 600,000 square foot fabs in upstate New York, making it the largest chip project in U.S. history.

Micron aims to significantly increase the U.S. share of DRAM production, which currently stands at 2%, through its fab in Manassas, Virginia. The company is receiving support from the federal CHIPS and Science Act, which provides billions of dollars to encourage domestic production.

Micron's investments through CHIPS support in Boise, Idaho, and Syracuse, New York, will result in a 2% increase in worldwide production coming from the U.S., according to Mehrotra.

The decline in the U.S.'s share of overall chip manufacturing, from 37% to 12%, over the past three decades can be attributed to several factors. These include the higher costs of building and operating a new fab in the U.S. compared to Asia, where labor is cheaper, the supply chain is more accessible, and government incentives have been more substantial. In response to this, the CHIPS and Science Act has allocated $52.7 billion to companies that manufacture in the U.S.

Senate Majority Leader Chuck Schumer, D-N.Y., co-sponsored the bill.

Schumer stated in an interview with CNBC that we had lost our edge in chips, which are crucial to our economy, and if we don't regain that edge, not just in chips but in science, we will no longer be the world's top economic power.

Over 460 companies, including Micron, have applied for funds from the CHIPS Act. Additionally, states are offering incentives to attract chip companies. Micron is eligible for up to $5.5 billion from the state of New York for its four fabs located north of Syracuse. New York Gov. Kathy Hochul signed the Green CHIPS Act into law last year.

Hochul stated that if the CHIPS and Science Act had not been passed first, there would not have been as many incentives as necessary. She knew she had to persuade them, discuss our incentives, but also we would gain 50,000 jobs. That's a great deal for us any day of the week.

Micron is placing a large bet on the growth of the memory market after major price cuts for memory chips caused layoffs and production cuts at several companies, including Micron and SK Hynix.

Gatzemeier stated that the growing demand for large language learning models and related technologies remains high.

"As we transition to features such as FaceTime, high-resolution images, and on-demand movies, the need for increasing amounts of memory becomes imperative," he stated.

Micron plans to increase the share of chips it makes in the U.S. from 10% to nearly 60% in the next two decades, with construction in New York beginning at the end of 2024 and chip production there starting in 2027.

‘Feast or famine’

In 1978, Micron was established by three chip engineers and their twin brother in a dental office's basement in Boise. By 1980, the company was constructing its first fab and by 1981 it was manufacturing a groundbreaking 64K DRAM chip. These chips, which enabled quick data access by a CPU, were later utilized in many early PCs.

In 1997, Gatzemeier began working as an intern and later explained the differences between DRAM and NAND memory.

DRAM is a type of volatile memory that loses all information when power is removed, while NAND flash memory is nonvolatile and retains data even when power is removed.

In 1984, Micron entered the public market. Despite being a competitive field, memory has narrowed down to only three dominant players over time.

Patrick Moorhead, CEO of Moor Insights and Strategy, stated that the key to success in the market is achieving both high performance and low cost simultaneously.

Since 1998, Micron has made 11 acquisitions, including Texas Instruments' memory division, Numonyx, Elpida, and Inotera, and is the third-largest manufacturer of DRAM after Samsung and SK Hynix.

Gaurav Gupta, an analyst at Gartner, stated that for a prolonged duration, the company had not invested in a new fab. However, they managed to maintain their market position by acquiring smaller memory firms that were either facing liquidation or bankruptcy.

Unlike many types of chips, there was no shortage of memory during the chip shortage. In fact, Micron and its competitors experienced a surge in demand for consumer electronics due to the pandemic. However, Micron's profits took a hit when demand for PCs and smartphones decreased and there was an oversupply of chips, leading to lower prices. This downturn has affected the entire chip industry.

Moorhead stated that the market has always been in a state of either abundance or scarcity over the past 30 years. Currently, there is an excess of supply. However, he predicted that in the near future, there will be a deficit, causing prices to rise.

Despite the economic slump, Mehrotra remains hopeful that Micron's smartphone business will continue to expand. The company provides memory for phones from major brands such as Apple, Motorola, and Asus.

As Mehrotra stated, the trend is shifting towards higher-end flagship smartphones, which demand more memory. In the future, it is predicted that the total worldwide smartphone unit sales will increase year over year by 2024.

Micron is concentrating on expanding into emerging markets such as automotive and AI. The company's next-generation High Bandwidth Memory product is set for mass production next year. HBM technology enables AI models like ChatGPT to recall past interactions and user preferences, resulting in more human-like responses.

Mehrotra stated that the device can pack 50% more memory capacity in a memory cube, provide 50% faster performance, and offer about 2.5 times better power and performance efficiency. These elements are crucial in AI applications.

Banned in China

Micron is facing two major challenges related to its sales in China and the U.S.

Micron is currently just a pawn in this game, as Moorhead stated," according to the report. "They were neither the first nor the last to be involved.

Mehrotra offers a more diplomatic approach.

The U.S. and China must create a stable business environment for companies to invest predictably, according to him. Additionally, Micron is fully dedicated to leveraging its technology, products, and manufacturing capabilities to benefit customers in various Chinese markets.

Micron has commenced building a $2.75 billion assembly and test plant in India.

Gartner's Gupta stated that Micron is attempting to diversify its base by establishing testing and packaging facilities in China. Furthermore, it is evident that they are attempting to move away from China and diversify their operations.

Samsung, SK Hynix, and smaller Chinese memory makers still provide chips to China, as memory is considered a commodity and easily replaceable. However, this may not always be the case.

If the boom days return and Hynix and Samsung are unable to meet the demand, China may re-enter the Micron market and lift any restrictions, as predicted by Moorhead.

Moorhead stated that China's accusation of Micron's cybersecurity risk is "a pretext."

He stated that it is difficult to embed malicious content into storage or memory compared to a CPU or GPU system, as it is unfamiliar technology to him.

In October, a delegation of senators led by Schumer visited China for a rare meeting with President Xi Jinping, during which they discussed the ban on Micron.

Schumer stated on CNBC that he believes China was behaving improperly towards Micron regarding the prohibition of selling certain chip manufacturing equipment. Despite China's dissatisfaction with the Biden administration's decision, Schumer vowed to support Micron.

In 2018, Micron was once again at the center of U.S.-China tensions when the U.S. accused Chinese chip company Fujian Jinhua of stealing intellectual property from Micron, a claim the Chinese company denied.

Micron is concentrating on U.S. expansion instead of geopolitical tension. The reasons for Micron's decision to settle in New York for its largest project were water and power.

Hochul stated that the transition to renewable energy sources is possible in the Finger Lakes region, as well as in two Great Lakes, Lake Erie and Lake Ontario, due to the availability of plentiful water and low-cost power generated through hydroelectric, wind, and solar energy.

Micron's new fabs will consume 25 Olympic-size swimming pools of water daily, with a goal of recycling 75% of it. Additionally, the company will use the same amount of energy needed to power 25,000 homes.

Although the cost of energy in the United States is lower than in many other countries, the cost of people and materials to build factories is higher, but this gap is closing over time, as Moorhead stated.

In Arizona, Taiwan Semiconductor Manufacturing Company, the world's advanced chip leader, has attributed delays to its $40 billion fab under construction to a shortage of skilled labor.

Hochul stated that it won't occur in New York because we already have a legacy, with Wolfspeed and other established companies, making this not a new industry for us.

Gatzemeier's daughter attended Micron's Chip Camp in Boise for middle schoolers, and the company is now investing in university programs to develop future semiconductor engineers.

Gatzemeier announced that Micron has begun aggressively targeting universities and leveraging its global resources to bring in semiconductor expertise to train new team members.