China fails to check Micron’s products in a security review, and is blocking some purchases

BEIJING (Reuters) – China’s cyberspace regulator said on Sunday that products made by U.S. chip maker Micron Technology Co (MU.O) had failed its network security review and would prevent major infrastructure operators from buying from the company.

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

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

Micron said it has received notice from the CAC that it has completed its review of the company’s products sold in China, and looks forward to “continuing to participate in discussions with Chinese authorities.”

The CAC did not provide details about the risks it found nor which Micron products would be affected.

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

“Because Micron’s DRAM and NAND products are much lower in servers, we believe that most of its revenue in China is not generated by telecom companies and the government. Therefore, the ultimate impact on Micron 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) as well as Japan’s Kioxia, a unit of Toshiba Corp (6502.T).

Shares in SK Hynix and Samsung rose 1% and 0.5% respectively early on Monday, while the broader market (.KS11) rose 0.6%. Stocks in Toshiba have been flat.

Christopher Miller, a professor at Tufts University and author of “Chip Wars: The Battle for the World’s Most Important Technology,” said the timing of the CAC’s announcement was significant, as it came during the G7 leaders’ summit in Japan. “

Micron last week announced a plan to invest up to 500 billion yen ($3.70 billion) in Japan in UV technology, becoming the first chipmaker to bring advanced chip manufacturing technology to the country now seeking to revitalize the chip sector.

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

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

China announced its review of Micron products in late March. The company said at the time that it was cooperating and that its business operations in China were normal.

In the spat between the US and China governments, Washington has imposed a series of export controls on chipmaking technology to China and moved to block Micron rival Yangtze Memory Technologies from buying certain US components.

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

Micron derives about 10% of its revenue from China, but it is not clear if the decision affects the company’s sales to non-Chinese customers in the country.

According to Jefferies, it brought in $5.2 billion in revenue from China and Hong Kong last year, about 16% of its total revenue.

According to analysts, the bulk of Micron’s products flowing into China are purchased by non-Chinese companies for use in products manufactured there.

China in September 2021 imposed rules aimed at protecting critical information infrastructure, which require its operators to comply with stricter requirements around areas such as data security.

Beijing has broadly defined industries it considers “critical” such as public communications and transportation but has not specified exactly what type of company or scope of business this will apply to.

(Reporting by Kevin Yao; Editing by Elaine Hardcastle)

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