China Paving The Way For Lesser Threats?
China banned US chip maker Micron from selling to Chinese companies working on key infrastructure projects, in a major escalation of an ongoing battle between the world’s top two economies over access to crucial technology. This move might spell an opportunity for Korea.
Sources: CNN, DIGITIMES
The Cyberspace Administration of China (CAC) announced the decision on 21 May 2023, saying the US chip maker failed 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 declined 3% on 22 May 2023. Its Asian rivals reportedly 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.
China’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.
An Opportunity For Home, Followed By Korea?
China is Micron’s second-largest market. In 2022, Micron’s revenue reached US$30.8 billion, of which China accounted for 11%, or US$3.31 billion. Furthermore, in terms of product structure, Micron’s revenue consists of US$22.4 billion from DRAM and US$7.8 billion from NAND Flash, accounting for 74% and 24% respectively.
This earth shaker was sufficient to turn analysts’ eyes inwards first — catalysing optimism towards locally made chips. China-based Guojin Securities believes that the decision will greatly benefit Chinese memory makers which directly compete with Micron, such as Ingenic, CXMT, YMTC, and GigaDevice.
Meanwhile, China International Trust Investment Corporation (CITIC) Securities believes that wafer procurement is temporarily unaffected in the module sector, but the customers downstream may switch orders, benefiting domestic module manufacturers. Likewise, Huatai Securities believes that Chinese companies have already gained a foothold in the DRAM and NAND sectors.
Currently, China’s self-suffiency rate in the memory industry remains relatively low, and the Micron ban is expected to drive the substitution process in China’s low- to mid-end memory sector. However, according to CITIC, Chinese companies may also shift their memory module/wafer procurement orders to non-US vendors such as Samsung and SK Hynix, creating opportunities for suppliers in their supply chains.
Similarly, the Capital Group suggests that the worst-case scenario would see Micron completely withdrawing from the China’s memory market, leading to short-term order shifts to competitors such as YMTC, Samsung, and SK Hynix.
Nevertheless, as Micron is the world’s third-largest DRAM manufacturer and one of the top five NAND Flash chip manufacturers, it can redirect its sales efforts to other regions, according to the investment consultancy.
After all, memory chip is a standardised product that can be sold anywhere, and the Capital Group estimates that this will only cause minor shifts in the market landscape without significant impacting global chip supply and demand or price fluctuations. However, the big question is will the electronics titans settle for low- to mid-end standards when they have a reputation to protect? China still has an ongoing stigma to contend with; the republic appears to be trying its best to shake this off.
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