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

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Touch! The technological battle between the US and China continues to the leaden pace of two heavily armored knights taunting each other with lawn brooms. China has banned its large infrastructure operators from buying US Micron Technology memory chips. It is retaliating against the expansionary sector controls introduced by the US last year.

The United States aims to slow down China’s technological progress. Beijing’s latest tit-for-tat move could have the same effect.

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

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

Additionally, Micron has successfully diversified its sources of income. Its “computing and networking” business, which produces products used in cloud servers, enterprises and networks, accounts for more than half of its operating income, significantly outpacing earnings from consumer electronics. This should protect Micron if Beijing decides to tighten restrictions to include electronic devices and infrastructure.

For Micron’s Chinese customers, however, such a ban would mean less price competition. This explained a rise in shares of Chinese memory chip makers, although Samsung and SK Hynix would benefit more. It also explains the decline in shares of Micron’s Chinese industrial customers, including flash memory device maker Shenzhen Longsys Electronics, whose shares fell 4%.

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

Lex is the FT’s concise daily investment column. Expert writers in four global financial centers provide timely, informed views on capital trends and big business. Click to explore