China’s Micron ban will likely see clients shift to local firms

China’s de facto ban on the sale of Micron Technology products in the country will likely push clients towards alternative suppliers, including Korean and local players, analysts say.

In China’s strongest retaliation yet in the face of mounting US tech sanctions, authorities ruled that products from Micron, the US memory chip giant based in Boise, Idaho, endanger China’s national security and ordered operators of key information infrastructure to cease buying them. The move was described by some Chinese commentators as Beijing “showing the sword” to Micron.

The US government rebuked Beijing’s decision. In a statement on Monday the US Commerce Department said the Micron decision and recent raids at American consultancy firms by Chinese authorities contradicted the country’s commitment to market opening and providing a transparent regulatory framework.

Micron said in a statement that it will maintain communications with Chinese authorities. It told the Post that it is “evaluating the conclusion and assessing our next steps”.

The Cyber Security Review Office under the Cyberspace Administration of China (CAC) said on Sunday that Micron had failed to pass a cybersecurity review, seven weeks after the regulator launched a probe into Micron products.

The Chinese government has provided few details about the probe, including which Micron products were involved in the review and how they were tested. The results of the investigation, which was relatively swift for such a large punishment, could close off China to Micron – a market which contributed about 11 per cent of the US firm’s total revenue of US$30.8 billion in 2022.

Some Chinese observers have said Micron slipped into Beijing’s cross hairs after it made allegations against Fujian Jinhua Integrated Circuit, once a rising star in the country’s efforts to catch up in memory chip production, which triggered a high-profile, trade-secrets prosecution by US authorities into the firm.

Shares in Chinese memory chip companies surged on Monday in Shanghai and Shenzhen on hopes that they will move to fill the gap left by Micron.

A research note published by Citic Securities on Monday said that Chinese clients would shift their orders to South Korean firms such as Samsung Electronics and SK Hynix and Chinese domestic memory chipmakers, including DRAM from Changxin Memory Technology Corp (CXMT) and NAND from Yangtze Memory Technologies Corp (YMTC).

However, according to a Financial Times report last month citing sources, the United States asked South Korea to urge its chip makers not to fill any market gap in China should Beijing ban Micron.

Chinese memory players have gained ground on leaders such as Micron in recent years amid Beijing’s drive to achieve greater self-sufficiency in chips. The Post reported earlier that YMTC is making progress in applying domestic equipment to produce advanced memory chips.

Sravan Kundojjala, a senior independent semiconductor industry analyst, said Hynix and Samsung, which both have China fabs, may benefit in the near term, with neither YMTC or CXMT in a good position to replace Micron. “YMTC has progressed well in recent years but it has been hit by [US] equipment restrictions. Micron, in general, is ahead of most memory players in process nodes,” he said.

Bai Wenxi, chief economist at IPG China, said “the high-end [of the memory chip sector] is still mainly occupied by global companies from the US, Japan and South Korea”. He added that Micron’s failure to pass the national security review has “created opportunities for domestic companies to enter the mid-to-high-end memory chip sector”.

This is not the first time that Micron has faced a sales ban. A court in southeastern Fujian province ruled in July 2018 that Micron’s Shanghai plant should immediately stop selling its Crucial solid state drives in China, but the ban was never fully implemented and the products remained widely available on Chinese e-commerce websites.

Dylan Patel, chief analyst at research firm SemiAnalysis, said China’s Micron ban “is a pretty good way to punch back” but the move is not going to disrupt the whole industry as “memory is a commodity and supply chains will adjust in a couple of quarters”.

Ian Wang, a cybersecurity lawyer at law firm DeHeng, told the Post that the possibility of the decision being reversed at some point cannot be ruled out either, as Micron might be able to “rectify its shortcomings” and resume sales in China.

In its statement CAC said that China is committed to opening up and foreign companies are welcome in the Chinese market as long as they comply with Chinese laws and regulations, seen by many as an effort to soothe potential concerns at other foreign technology giants with a significant presence in the country. CAC also stopped short of imposing a fine on Micron.

Micron first entered China in 2001 to capture opportunities in a fast-growing market. It opened a small office with 60 employees in Shanghai in 2004, and further expanded by setting up branch offices in Beijing and Shenzhen to provide sales and marketing services throughout China.

In 2017, Micron opened a new manufacturing facility in Xi’an, capital of central Shaanxi province, for testing and packaging semiconductor products. However, it closed its research and development centre in Shanghai by the end of 2022, three months before CAC’s probe. After the probe was announced, Micron named Betty Wu as its China general manager.

The US Commerce Department said it will “engage directly with PRC authorities to detail our position and clarify their action”, adding that it will engage with key allies and partners to ensure coordination to “address distortions of the memory chip market caused by China’s actions”.

Micron’s top customers in China, ranked by contributions to revenue, are computer giant Lenovo Group, smartphone maker Xiaomi Corp, Inspur Electronics Information, ZTE, Coolpad, China Electronics Corp and Oppo, according to Bloomberg data. South China Morning Post