Micron warns of lost revenue after China slaps it with sanctions

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solo30 May 2023Last Update : 4 months ago
Micron warns of lost revenue after China slaps it with sanctions

US chip maker Micron says a ban on selling to Chinese companies working on key infrastructure projects could cost it as much as a “high single digit” percentage of its annual revenue.

Beijing announced the sanctions on Sunday, in a major escalation of an ongoing battle between the world’s top two economies over access to crucial technology.

The Cyberspace Administration of China (CAC) said the company had failed to pass a cybersecurity review. The news came shortly after the close of the Group of Seven (G7) summit in Hiroshima, Japan, where leaders of major democracies spoke in one voice on their growing concerns over China.

“The review found that Micron’s products have relatively serious cybersecurity risks, which pose significant security risks to China’s critical information infrastructure supply chain and would affect national security,” the Chinese regulator said in a statement.

As a result, operators involved in domestic critical information infrastructure projects should stop purchasing products from Micron, it said.

Shares of Micron Technology (MU) sank about 3% Monday. Its Asian rivals had finished the day higher. Shares of Chinese memory chip maker Ingenic Semiconductor jumped 2.8%. Shenzhen Techwinsemi Technology surged 6.3%. Toyou Feiji Electronics soared 14%. In Seoul, SK Hynix, one of the world’s largest memory chip makers, gained 0.9%, outperforming the South Korean market.

The Chinese regulator’s decision came seven weeks after it kicked off a cybersecurity review of Micron’s products, in apparent retaliation against sanctions imposed by Washington and its allies on China’s chip sector.

Micron is one of the largest memory chip makers in the United States. It derives more than 10% of its revenue from mainland China.

The company told CNN that it had received the regulator’s notice and was assessing its next steps.

“We look forward to continuing to engage in discussions with Chinese authorities,” it said in a statement.

Micron’s chief financial officer, Mark Murphy, said separately on Monday that the company was unclear what security concerns Beijing had. He said the company is evaluating what portion of its sales could be impacted.

“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,” he said at a conference.

The US Commerce Department said it firmly opposed the restrictions that “have no basis in fact.”

“This action, along with recent raids and targeting of other American firms, is inconsistent with [China’s] assertions that it is opening its markets and committed to a transparent regulatory framework,” a spokesperson of the department said in a statement.

The US State Department similarly said it has “very serious concerns” about the ban.

“The Department of Commerce is engaging directly with the PRC to make our view clear, and broadly, this action appears inconsistent with the PRC’s assertions that it is open for business and committed to a transparent regulatory framework,” US State Department spokesperson Matthew Miller said Monday.

On Sunday, China’s Foreign Ministry accused G7 leaders of “hindering international peace” and said the group needed to “reflect on its behavior and change course.”

China’s ‘economic coercion’

In a landmark joint communique Saturday, G7 member countries had made the group’s most detailed articulation of a shared position on China to date — stressing the need to cooperate with the world’s second-largest economy, but also to counter its “malign practices” and “coercion.” in a landmark joint communique Saturday.

Since October 2022, Washington has imposed sweeping export curbs on advanced chips and chip-making equipment to China, in an attempt to cut off China’s access to critical technology for military purposes.

In March, Japan and the Netherlands, both key US allies, also announced restrictions on overseas sales of chip-making technology to countries including China. China has strongly criticized the restrictions, labeling them “discriminatory containment” directed at the country.

However, US President Joe Biden said on Sunday that he expected ties between the two countries to improve soon.

“I think you are gonna see that begin to thaw very shortly,” Biden told a news conference at the end of the Group of Seven summit in Japan.

He said he had agreed with Chinese President Xi Jinping in November to keep communications open, but that everything changed after a “silly balloon that was carrying two freight cars worth of spying equipment” was shot down.

“We are not looking to decouple from China,” he said. “We are looking to de-risk and diversify our relationship with China.”

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