Micron Expects Impact as China Bans Its Products from 'Critical' Industries
by Anton Shilov on May 23, 2023 8:00 AM EST
In the latest move in the tit-for-tat technology trade war between the United States and China, on Sunday the Cyberspace Administration of China announced that it was effectively banning Micron's products from being purchased in the country going forward. Citing that Micron's products have failed to pass its cybersecurity review requirements, the administration has ordered that operators of key infrastructure should stop buying products containing chips from the U.S.-based company.
"The review found that Meiguang's products have serious hidden dangers of network security problems, which cause major security risks to China's key information infrastructure supply chain and affect China's national security," a statement by CAC reads. "Therefore, the Cyber Security Review Office has made a conclusion that it will not pass the network security review in accordance with the law. According to the Cyber Security Law and other laws and regulations, operators of key information infrastructure in China should stop purchasing Micron's products."
The CAC statement does not elaborate on the nature of 'hidden dangers' and about the risks they pose. Furthermore, the agency did not detail which companies are considered as 'operators of key information infrastructure,' though we can speculate that these are telecommunication companies, government agencies, cloud datacenters serving socially important clients, and a variety of other entities that may deem crucial for the society or industries.
For U.S.-based Micron, while the Chinese market is a minor one overall, it's not so small to be inconsequential. China and Hong Kong represent some 25% of Micron's revenues, so the drop in sales is expected to have an impact on Micron's financials.
"As we have disclosed in our filings, China and Hong Kong headquartered companies represent about 16% of our revenues," said Mark Murphy, Chief Financial Officer at Micron, at the 51st Annual J.P. Morgan Global Technology, Media and Communications Conference. "In addition, we have distributors that sell to China headquartered companies. We estimate that the combined direct sales and indirect sales through distributors to China headquartered companies is about a quarter of our total revenue."
The trade war implications aside, the 'key information infrastructure' wording of the government order leaves unclear for now on just how wide the Micron ban will be. Particularly, whether Micron's products will still be allowed to be imported for rank-and-file consumer goods. Many of Micron's Chinese clients assemble PCs, smartphones, and other consumer electronics sold all around the world, so the potential the impact on Micron's sales could be significantly lower than 25% of its revenue so long as they are allowed to continue using Micron's parts.
"We are evaluating what portion of our sales could be impacted by a critical information infrastructure ban," Murphy added. "We are currently estimating a range of impact in the low single digits percent of our company total revenue at the low end and high single-digit percentage of total company revenue at the high end."
The decision CAC decision comes after the U.S. government barred Chinese chipmakers from buying advanced wafer fab equipment, which is going to have a significant impact on China-based SMIC and YMTC, and years after the U.S. government implemented curbs that essentially drove one of China's emerging DRAM makers out of business. Officially, whether or not the CAC decision has been influenced by the sanctions against Chinese companies by the U.S. government is an unanswered question, but as the latest barb between the two countries amidst their ongoing trade war, it's certainly not unprecedented.
Sources: Micron, Reuters, SeekingAlpha, CAC.
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TeXWiller - Tuesday, May 23, 2023 - link
I wouldn't be surprised if the ban relates to Micron's Advanced Solutions product category rather than the memory products.Silver5urfer - Tuesday, May 23, 2023 - link
If anyone has some sense they know it's nothing related to Cybersecurity (laughable) It's just a tit for tat move. US banned YMTC, China bans Micron. China already took a lot of IP and repurposed, just look how Smartphone industry was and how it is now. Apple gave the key manufacture and other data to them (Huawei Mate and Kirin etc were nothing back then) and they exploded in the output and slowly ate away all the other smartphone makers (Xiaomi, Oppo rank top 3-4 positions on the planet), same for LCD technology. LG is now 2nd. Soon to be OLED and NAND and in time x86 by that Hygon / VIA (Loongsoon). This is just another WallSt moves in the past 2 decade showing the reaction.Silver5urfer - Tuesday, May 23, 2023 - link
Forgot to mention, Apple was 1 inch distant from enabling the NAND market collapse, if YMTC got iPhone / iPad / Mac contracts it was done for SKH, Samsung, WD/SanDisk (Kioxia/Toshiba) Irony is Apple owns stake in Bain Capital based Kioxia, still wanted YTMC why ? WallSt investor greed.Doug_S - Tuesday, May 23, 2023 - link
Apple only wanted to use YMTC memory for iPhones sold in China, why would that have collapsed the NAND market when that's less than 20% of Apple's yearly production?That was probably something China was "encouraging", and I'm sort of surprised they allowed the US ban to stand rather than putting Apple in the middle by mandating locally made NAND/RAM in devices sold in country. I think they would have if for not the fact that as much as Apple needs China, China also needs Apple so they are getting back on that YMTC ban via Micron instead.
Silver5urfer - Tuesday, May 23, 2023 - link
Because what I said, earlier about how Smartphone manufacturing is now entirely controlled by China and their corporations for the most and with LCD taken over slowly, once Apple gives them what they want they will take over the entire industry. You want to look at how BMW, Volvo manufactures their parts there and see how rapidly the Chinese Automotive is growing. You just have to give them the start and see it grow exponentially.limitedaccess - Tuesday, May 23, 2023 - link
Mandating locally sold devices for China wouldn't have done anything in the YMTC case. The YMTC ban was targeted in at curbing equipment exports to them which prevents them from scaling up production. YMTC was one NAND manufacturer that planned to actually scale up (and aggressively so) production during 2023 while all the others were cutting in face of the demand collapse, that's what would have caused further price disruption.i_am_banned - Tuesday, May 23, 2023 - link
These bans on either side have nothing to do with cybersecurity. They're tit for tat. TikTok or Huawei or Micron, they're from the same playbook.Samus - Tuesday, May 23, 2023 - link
The bans never had anything to do with national security, cyber security, whatever. It was an angry man baby's racist tantrums that got the whole world into this because in his infinite wisdom, contrary to everything we know about economics, trade wars could be won. When they can't. It never stops. The last trade war we had half a century ago with Europe still resonates today. Just look up the 'Chicken Tax.'It's really easy to screw things up, but really hard to fix them.
Threska - Tuesday, May 23, 2023 - link
Well 25% that would have gone to China is now freed for other markets to uptake.Samus - Tuesday, May 23, 2023 - link
There is such an oversupply of current-gen NAND, FLASH and DRAM, shifting that quantity to other markets...those markets just don't exist. They will either dump at a discount (and probably a loss) or severely cut production, which might mean jobs.I think Micron finally had a profitable last quarter (I forgot if it was a profit or just not a huge loss) but they've been in trouble for years. This is really bad news and it makes no sense. NAND, DRAM and SSD controllers don't have back doors. The SED encryption algorithms are industry standard implementations and any irregularities can be detected. As other have mentioned, I wonder if this relates to their other products, because frankly, it's ridiculous if this has to do with raw storage products.