SEOUL, May 22 (Reuters) – US-based Micron Technology Inc (MU.O) is forecasting a hit for sales in the low-single digits to high-single digits on Monday following a ban by China on sales of its memory chips to key domestic industries were last in the Sino-American trade dispute.
China’s cyberspace regulator said late Sunday that Micron, the largest U.S. memory chipmaker, had failed its network security assessment and would block operators of key infrastructure from buying from the company.
It did not provide details about what risks it found or which of the company’s products would be affected.
Analysts said they saw limited direct impact on Micron as most of its key customers in China are consumer electronics players, but warned that the move could lead some companies to rid their supply chains of Micron products due to political risks.
Micron Chief Financial Officer Mark Murphy said at a conference Monday that it was unclear what concerns Beijing had and that direct and indirect sales to companies headquartered in China accounted for about a quarter of the chipmaker’s revenue.
“We currently estimate a range of impact in the low-single-digit percentage of total company revenue on the low end and the high-single-digit percentage of total company revenue on the high end,” Murphy said.
The comments helped Micron’s stock cut its losses, with the stock closing up 2.8% on the Nasdaq Monday at $66.23.
Beijing’s decision was opposed by Washington but helped the shares of Micron’s rivals in China and South Korea, which benefit as mainland companies seek memory products from other sources.
“We firmly oppose restrictions that have no basis in fact,” a spokesman for the US Department of Commerce said Sunday.
“This action, along with recent raids and attacks on other U.S. companies, is inconsistent with (China’s) claims that it is opening up its markets and committed to a transparent regulatory framework.”
Tensions between Washington and Beijing have increased in recent months following raids and visits by Chinese authorities on US due diligence firm Mintz Group and management consultancy Bain.
Micron is the first U.S. chipmaker to be targeted by Beijing following a series of export controls by Washington on certain U.S. chip-making components and tools to prevent them from being used to enhance China’s military capabilities.
China launched the review in late March amid a dispute over chip technology and deteriorating relations between Washington and Beijing.
The move also comes shortly after the Group of Seven countries agreed to “reduce risk, not decouple” economic relations with China and as US President Joe Biden called for an “open hotline” between Washington and Beijing.
The US Commerce Department said it would speak directly with authorities in Beijing to clarify their actions.
“We will also work with key allies and partners to ensure we are closely coordinated to address disruptions to the memory chip market caused by China’s actions,” the department said.
While the Chinese statement and state media said the Micron decision should be viewed as an individual case in the context of national security concerns, not geopolitics, prominent Chinese commentator Hu Xijin struck a different note.
“Washington itself encourages US companies to do things that endanger China’s national security, so it suspects Chinese companies are doing the same,” the former editor-in-chief of the nationalist state tabloid Global Times tweeted. “The whole world should be wary of the US.”
Michael Hart, president of the US Chamber of Commerce in Beijing, said the ban has created uncertainty for US companies operating in China.
Hart said, “members ask us two things: Will they be targeted for being American, and how can they ensure they remain compliant in a business environment that seems increasingly influenced by national security concerns?”
Republican Chairman of the House Foreign Affairs Committee Michael McCaul called China’s justice system “mafia-like” and accused Beijing of “bullying an American company.”
CHINESE CHIP STOCKS ANNEX
China’s announcement of its Micron review helped boost shares in some local chip manufacturing-related companies as state media reported that domestic players could benefit from the move.
Shares in companies like Gigadevice Semiconductors (603986.SS), Ingenic Semiconductor (300223.SZ) and Shenzhen Kaifa Technology (000021.SZ) rose between 3% and 8% before pairing gains.
Micron’s main rivals also saw their shares rise, with South Korea’s Samsung Electronics (005930.KS) and SK Hynix (000660.KS) rising 0.9% and 2.1% respectively. They later trimmed profits to close 0.2% and 0.9% higher as analysts expect a limited impact on Micron.
Both Samsung and SK Hynix had no comment.
“Since Micron’s DRAM and NAND products are much less in servers, we believe most of its revenue in China will not be generated by telcos and the government. The ultimate impact on Micron will be quite limited,” Jefferies said. .
Bernstein said a 2% drop in revenue was the most realistic estimate given that Micron’s exposure to the enterprise and cloud server segment is relatively small.
Beijing has broadly defined industries it considers “critical”, such as public communications and transportation, but has not specified what type of business they apply to.
China, the world’s largest semiconductor buyer, has gradually reduced its reliance on foreign-made chips in a multi-year campaign to increase its self-sufficiency.
Reporting by Joyce Lee; Edited by Kim Coghill