China/Micron: Beijing ban restricts chip options for local companies

Touche! The tech battle between the US and China continues at the leaden pace of two heavily armoured knights biffing each other with yard brooms. China has banned its big infrastructure operators from buying the memory chips of America’s Micron Technology. It is retaliating against expansive sector controls introduced by the US last year.

The US is aiming to slow China’s technological progress. Beijing’s latest tit-for-tat move may have the same effect.

On the face of it, the ban is a big deal for Micron. Mainland China generated about a tenth of its sales for the 2022 fiscal year. Beijing said on Sunday that Micron’s products “pose significant security risks to China’s critical information infrastructure”.

Beijing’s wording suggests the ban would mostly be limited to telecommunications and transportation. Micron’s chips are not widely used in these sectors in China. Instead, they are mostly deployed in mobile devices and consumer electronics. 

Moreover, Micron has successfully diversified its sources of income. Its computer and networking business, which makes products used in cloud servers, enterprise and networks, accounts for more than half of its operating income, significantly outpacing earnings from consumer electronics. That should shield Micron if Beijing decides to tighten restrictions to include electronic devices as well as infrastructure. 

For Chinese clients of Micron, though, such a ban would mean less price competition. That risk would explain a rise in Chinese memory chipmakers’ stocks on Monday. It also explains larger declines in the shares of Micron’s Chinese clients, including flash memory device manufacturer Shenzhen Longsys Electronics, whose shares fell 4 per cent. 

China’s dominance in a wide range of industries such as electric-car batteries and materials means it has the ability to leave lasting damage through trade retaliation. But when it comes to chips, its high dependence on the US means it has little leverage.