China fails safety review of Micron’s products, blocks some purchases

BEIJING, May 21 (Reuters) – China’s cyberspace regulator said on Sunday that products made by U.S. memory chipmaker Micron Technology Inc ( MU.O ) failed its network security review and will bar operators of key infrastructure from buying from the company.

The decision, announced amid a dispute between Washington and Beijing over chip technology, could cover sectors ranging from telecommunications to transportation and finance, according to China’s broad definition of critical information infrastructure.

“The review found that Micron’s products contain serious network security risks, which pose significant security risks to China’s critical information infrastructure supply chain, affecting China’s national security,” the Cyberspace Administration of China (CAC) said in a statement.

Micron said it had received the CAC’s notice of the decision to review the company’s products sold in China and “look forward to continued discussions with Chinese authorities.”

The CAC did not provide details on what risks it identified or which Micron products would be affected.

Jefferies analysts expect a limited impact on Micron as its main customers in China are consumer electronics companies such as smartphone and computer manufacturers, not infrastructure suppliers.

“Since Micron’s DRAM and NAND products are limited in servers, we believe most of its revenue in China is not generated by telcos and the government. Therefore, Micron’s ultimate exposure will be very limited,” they said in a note.

Micron makes DRAM and NAND flash memory chips and competes with South Korea’s Samsung Electronics Co Ltd ( 005930.KS ) and SK Hynix Inc ( 000660.KS ) and Japan’s Kyoxia, a unit of Toshiba Corp ( 6502.T ).

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SK Hynix and Samsung shares rose 1% and 0.5% respectively in early Monday trading, while the broader market (.KS11) rose 0.6%. Toshiba shares were flat.

The timing of CAC’s announcement is important, coming during the Group of Seven (G7) leaders’ summit in Japan, said Christopher Miller, a professor at Tufts University and author of “Chip War: The Fight For The World’s Most Critical Technology.” “

Micron last week announced plans to invest up to 500 billion yen ($3.70 billion) in ultra-violet technology in Japan, becoming the first chipmaker to bring advanced chip manufacturing technology to a country now seeking to revive its chip industry.

US President Joe Biden said on Sunday that the G7 countries had agreed to “de-risk and diversify our relationship with China”. The leaders also agreed to establish an initiative to counter economic “coercion”.

“This case may be an early test of the G7’s efforts on this front,” Miller said.

China announced in late March that it was reviewing Micron’s products. At the time the company said it was cooperating and that its business operations in China were normal.

In the dispute between the US and China, Washington has imposed a series of export restrictions on chipmaking technology to China and has taken steps to block Micron rival Yangtze Memory Technologies from buying some US components.

US officials, including members of the US Congress’ select committee on competition with China, did not immediately respond to requests for comment.

Micron gets about 10% of its revenue from China, but it’s unclear whether the decision will affect the company’s sales to non-Chinese customers in the country.

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It generated $5.2 billion in revenue from China and Hong Kong last year, about 16% of its total revenue, Jefferies says.

According to analysts, a large portion of Micron’s products flow into China and are used by non-Chinese companies in products manufactured there.

In September 2021 China imposed rules aimed at protecting critical information infrastructure, requiring its operators to comply with stricter requirements in areas such as data protection.

Beijing has broadly defined the industries it considers “vital,” such as public communications and transportation, but it has not specified exactly what type of company or business purpose it would be used for.

Reporting by Kevin Yao; Editing by Elaine Hartcastle

Our Standards: Thomson Reuters Trust Principles.

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