China Hits Micron With Review Of Chips Citing Security Risks

(Bloomberg) – China has launched a cybersecurity review of imports from America’s largest memory chip maker, Micron Technology Inc., opening a new front in the escalating battle between the two countries for semiconductor market dominance.

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The Chinese government is conducting the review to ensure the security of its information infrastructure supply chain, prevent network security risks and uphold national security, it said in a statement Friday. Shares of Micron, which derives about 11% of its sales from mainland China, fell as much as 5.1% in New York to $59.90.

The move is likely to further escalate trade tensions between the Biden administration and China. The US has already blacklisted Chinese tech companies, tried to stem the flow of sophisticated processors and banned its citizens from providing some assistance to the country’s chip industry. It has urged other nations to join its efforts, and Japan said earlier on Friday it would expand restrictions on the export of 23 types of cutting-edge chipmaking technology.

“Clearly, China has been investing aggressively to build their own semiconductor ecosystem, and where we’re thinking of areas where they can be most successful, memory is one of them,” said Abhinav Davuluri, equity strategist at Morningstar. “This appears to be more political than anything else, a refutation of recent US actions. In terms of specific security risks for the products Micron sells, I am skeptical that there is anything.”

Micron of Boise, Idaho, did not immediately respond to requests for comment.

Micron was involved in an espionage case involving Chinese chipmaker Fujian Jinhua Integrated Circuit Co., which was blacklisted by Washington more than four years ago for industrial espionage and conspiracy to steal trade secrets from Micron.

Washington last year imposed strict export controls on semiconductor technologies to China and has spent years targeting Huawei Technologies Co., a leading telecoms infrastructure provider that the U.S. views as a national security threat with government ties.

The Biden administration, led by Gina Raimondo, has used the Commerce Department’s export control authority as one of its key tools to quash China’s technological ambitions and bolster national security. The US adds more than 600 Chinese facilities to the Entity List, preventing them from buying technology from US suppliers unless they get a special export license from Commerce.

“It is possible that Micron’s investigation is designed to pressure the US and its allies to take export controls lightly,” said Gerard DiPippo, senior fellow in the economics program at the Center for Strategic and International Studies. “It’s even more likely that Beijing is right to be concerned about China’s reliance on Micron chips, or indeed any US technology. Expect more actions like this in the future.”

China’s scrutiny also comes as US lawmakers passed a ban on TikTok, ByteDance Ltd’s social media platform. TikTok’s chief executive testified before Congress last week but failed to allay concerns.

China’s investigation could threaten a possible comeback for Micron and other memory chip makers after a rough patch. Last year, a sharp drop in consumer demand prompted Micron’s customers to scale back their orders. China’s exit from Covid-related restrictions was seen as a catalyst to support the industry as gadget makers would be able to get manufacturing plants back to normal.

Industry survivor

Earlier this week, Micron issued a better-than-expected outlook for the quarter, forecasting revenue of up to $3.9 billion for the fiscal third quarter, compared to median analyst estimates of $3.75 billion. Chief Executive Officer Sanjay Mehrotra outlined expectations for improvements in the supply and demand balance in the industry.

The company is the last remaining US-based computer memory maker to weather brutal industry downturns that have left larger companies like Intel Corp. and Texas Instruments Inc. were forced to exit. The company has relatively little exposure to China compared to its peers and does not use the country as a major manufacturing base.

Micron’s revenue share from China is less than half that of its Korean competitor SK Hynix Inc. While Micron’s limited presence shields it from potential consequences, it could exacerbate supply chain problems. Much of the world’s electronics and component systems come through factories in the world’s second largest economy.

“The biggest problem for Micron has been global weakness in consumer device sales,” said James Kelleher, an analyst at Argus Research Group. “Once that market recovers, it is conceivable that if Micron were banned from selling to China, it could recover lost sales in other markets. But it would affect her.”

–Assisted by Gao Yuan, Eric Martin, Ramsey Al-Rikabi and Lucy Papachristou.

(Updates with comment in fourth, last paragraph, background from sixth paragraph)

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