(Bloomberg) -- China has launched a cybersecurity review of imports from America’s largest memory chipmaker, Micron Technology Inc., opening a new front in the escalating battle between the two countries over dominance in the semiconductor market.
The Chinese government is conducting the review to ensure the security of its information infrastructure supply chain, prevent network security risks and maintain national security, it said in a statement Friday. Shares of Micron, which counts on mainland China for about 11% of its sales, fell as much as 5.1% in New York to $59.90.
The move stands to further escalate trade tensions between the Biden administration and China. The US has already blacklisted Chinese tech firms, sought to cut off the flow of sophisticated processors and banned its citizens from providing certain help to the country’s chip industry. It has called on other nations to join its efforts, and earlier on Friday, Japan said it will expand restrictions on exports of 23 types of leading-edge chipmaking technology.
“Obviously China has been investing aggressively to build out its own semiconductor ecosystem, and where we think about areas where they can be most successful, memory is one of them,” said Abhinav Davuluri, equity strategist at Morningstar. “This seems more political in nature than anything, a rebuttal to recent US actions. In terms of specific security risks for the products sold by Micron, I’m skeptical there’s anything there.”
Boise, Idaho-based Micron didn’t immediately respond to requests for comment.
Micron has been embroiled in an espionage case involving Chinese chipmaker Fujian Jinhua Integrated Circuit Co., which was blacklisted by Washington more than four years ago under charges of economic espionage and conspiracy to steal trade secrets from Micron.
Washington last year unleashed strict export controls on semiconductor technologies to China, and has spent years targeting Huawei Technologies Co., a leader in telecommunications infrastructure that the US has deemed a national security threat with ties to the government.
The Biden administration has been wielding the export control power of the Commerce Department, headed by Gina Raimondo, as one of its main tools to stifle China’s technological ambitions and bolster national security. The US includes more than 600 Chinese establishments on the Entity List, which blocks them from buying technology from US suppliers unless they get a special export license from Commerce.
“It’s possible that the investigation of Micron is intended to pressure the US and its allies to tread lightly on export controls,” said Gerard DiPippo, senior fellow with the Economics Program at the Center for Strategic and International Studies. “It’s even more likely that Beijing is legitimately worried about China’s reliance on Micron chips or really any US technology. Expect more actions like this going forward.”
China’s review also comes as US lawmakers are weighing a ban on TikTok, the social-media platform owned by Beijing-based ByteDance Ltd., over fears of China’s ability to access the data of million of Americans. TikTok’s chief executive officer testified before Congress last week but failed to alleviate concerns.
China’s probe could threaten a potential comeback for Micron and other memory chipmakers after a rough stretch. Over the past year, a steep drop in consumer demand spurred Micron’s customers to slash orders. China’s exit from Covid-related restrictions was seen as one catalyst to help the industry, as gadget makers would be able to bring manufacturing plants back to normal rhythm.
Earlier this week, Micron issued a better-than-expected outlook for the quarter, forecasting sales of as much as $3.9 billion in the fiscal third quarter compared with an average of analysts’ estimates of $3.75 billion. Chief Executive Officer Sanjay Mehrotra cited expectations for improvements in the balance of supply and demand in the industry.
The company is the last remaining maker of computer memory based in the US, having survived brutal industry downturns that forced larger companies such as Intel Corp. and Texas Instruments Inc. to bow out. The company has relatively little exposure to China compared with its peers, and it doesn’t use the country as a major manufacturing base.
Micron’s revenue share from China is less than half that of Korean rival SK Hynix Inc. While the limited footprint stands to cushion Micron against any fallout, it could still exacerbate supply chain woes. Much of the world’s electronics and component systems come through factories in the world’s second-largest economy.
“The biggest issue for Micron has been the global softness in consumer device sales,” said James Kelleher, analyst at Argus Research Group. “As that market recovers, it’s conceivable, if Micron were proscribed from selling to China, that they could make up lost sales in other markets. But it would affect them.”