U.S.-Sino trade tensions are leading to a commercial assault on the chip sector. Micron Technology (MU) , with operations in both countries, is currently caught in the crossfire.
China is conducting a cybersecurity review of Boise-based chipmaker Micron and the products it sells in China "in order to ensure the security of the key-information infrastructure supply chain, prevent network-security caused by hidden product problems, and maintain national security," the Chinese Office of Cybersecurity Review said in announcement on Friday.
Chinese foreign-ministry spokesperson Mao Ning explained further this week that the review is normal practice, whether the company is Chinese or from the United States. "As long as these firms can operate legally, there is nothing to worry about," Mao said.
The stock has sold off 9.2% since Thursday's close, before word of the investigation broke. That's at odds with the 0.9% gain in the Nasdaq composite since then.
China accounts for around 15% of Micron's sales. Analysts note that the other main suppliers of DRAM chips, the Korean companies Samsung Electronics (SSNLF) and SK Hynix (HXSCL) , are also generally aligned with U.S. policy, so it's unlikely they would benefit significantly from any penalization of Micron.
Still, political tensions are always a concern since they throw a level of uncertainty into proceedings that revolve more around U.S.-China diplomatic relations than anything to do with demand for DRAM chips themselves. Micron's chips go into a wide range of devices, including cars, computers, data centers and mobile phones.
Investors have also been digesting Q2 sales from Micron that fell 52.6%, leading to a US$2.3 billion quarterly loss, with the company forecasting a similar sales decline of close to 60% for Q3. Wall Street generally took those numbers in stride, with Micron suffering alongside the rest of the chip industry due to a glut in supply. But the company expects advances in Artificial Intelligence to lead to a record year in 2025.
Japan said on Friday that it will restrict exports of 23 types of chip-manufacturing equipment, bringing its policies in line with those enforced by the United States. It didn't specifically mention China as the target of its restrictions, but China's commerce ministry nevertheless cautioned Japan to "correct its wrong practice."
Japanese companies such as (Nikon T:7731) (NINOY) and Tokyo Electron (T:8035) (TOELY) will have to get permission to export chipmaking equipment anywhere in the world. Japan's trade minister said the country wants to ensure its advanced tech is not used for military purposes contrary to Japan's interests.
The U.S. Commerce Department in October introduced new rules stopping U.S. companies as well as companies using U.S. tech from exporting chip technology specifically to China without special permission, if the tech can be used for military purposes. The U.S. government also passed the CHIPS and Science Act into law last year to encourage investment in the U.S. chipmaking sector, prompting Micron to announce a plan to invest US$40 billion domestically by the end of this decade.
The other major chip manufacturing power, the Netherlands, joined the United States last month in introducing very similar restrictions on exports of chips to China. Japan, the United States and the Netherlands have reportedly conducted months of behind-the-scenes talks on the topic.
China is chiding the Japanese side for their announcement, even if Japan did not direct it specifically at China, unlike the Dutch and the United States.
"China will take decisive measures to resolutely safeguard its legitimate rights and interests if the Japanese side insists on artificially obstructing cooperation between the two countries," a Chinese commerce ministry spokesperson said at a press briefing, when asked if Japan is coordinating its approach with the United States.
So China is attempting to stimulate foreign investment once more now that it has opened its borders, while penalizing foreign companies that do operate inside China if the political winds blow foul.
China welcomed a roster of foreign executives including Apple (AAPL) CEO Tim Cook and Hitachi (T:6501) (HTHIY) CEO Toshiaki Higashihara at the China Development Forum in Beijing last week. Newly appointed Premier Li Qiang told them that "China will open itself wider to the world," adding that "to invest in and stay in China is to choose a better future."
Micron opened an office in China in 2001, and then built its first Chinese factory in 2007 in the city of Xian. But despite having 3,000 employees in China, it decided last year to close down its DRAM design team in Shanghai, relocating staffers to the United States or India, leaving Shanghai to focus on NAND chips.
The United States is also investigating intellectual-property theft from Micron in China. The U.S. Department of Justice in 2020 secured a guilty plea from the Taiwanese chip foundry United Microelectronics (TW:2303) (UMC) for stealing trade secrets from Micron, fining it US$60 million but securing its assistance in testifying against its Chinese state-owned co-defendant, Fujian Jinhua Integrated Circuit.
"UMC stole the trade secrets of an American leader in computer memory to enable China to achieve a strategic priority: self-sufficiency in computer memory production without spending its own time or money to earn it," Deputy Attorney General Jeffrey Rosen said.
According to the guilty plea, UMC hired three former Micron employees in Taiwan, and struck a deal to make DRAM chips for the Fujian-based company using intellectual property stolen from Micron. UMC hadn't been making DRAM chips, and the three staffers went to great lengths to hide the data they were using from UMC's own I/T team, leading to a raid by Taiwanese authorities. The Chinese company has denied stealing the information -- but did hire one of the Micron-UMC defectors as soon as the "off-network" laptops using Micron tech started getting seized.
For now, China does not have a domestic chip industry that can produce chips to the quality of operators in the West, or Taiwan. Chinese President Xi Jinping has pledged to develop the domestic chipmaking industry, but current estimates are that it will take a decade or more to catch up -- efforts that are pushed back in scope every time new restrictions in the West appear.
