Eye for An Eye
Whether you agree that it has been warranted or not, there is no doubt that Chinese semiconductor manufacturers have been severely sanctioned by the US government, increasing the challenge facing the Chinese government’s desire to be a world leader in the semiconductor space. While China needs US tools and technology to maintain a competitive stature in the world of advanced silicon products, it has done little but lodge complaints, at least up until last week, when China’s National Security Review Office conducted a ‘security’ review of products produced by Micron (MU) that are sold in China.
According to the review, the Micron products did not pass the review and ‘pose a major security risk to the country’s critical information infrastructure supply chain’. According to Chinese Network Security law, operators of critical information infrastructure in China should stop purchasing Micron products. The office added “China firmly promotes high-level opening up to the outside world. As long as it abides by Chinese law and regulations, companies from all countries and various platforms are welcome to enter the Chinese market.”
The US DOC responded with, “We firmly oppose restrictive measures that have no factual basis., while Micron was said to have received notice from the China Cyberspace Administration concerning the review conclusion and would evaluate the conclusion and follow-up options but fell short of acknowledging that it would file a complaint, indicating “We look forward to continuing our discussions with Chinese authorities.” As Micron is the world’s 3rd largest memory supplier, behind Samsung Electronics (005930.KS) and SK Hynix (000660.KS), with a ~25% share, and generated ~$3.3b in sales to Chinese companies last year, the impact will be felt in the US, while South Korean companies will likely pick up much of the slack.
China is certainly in a less advantageous position than the US when it comes to semiconductors, as it remains years behind the US and others in terms of semiconductor technology and is further limited as to advanced lithography equipment sanctions, and there is little chance that the Chinese government will hit its goal of 70% of Chinese demand being satisfied by Chinese producers. That said, China’s internal production of its semiconductor memory demand has increased from ~8% in 2020 to 10.7% in 2021 and 16.2% last year., and even with the US ban on DUV tools, China can still buy tools for memory nodes 11nm or above. Last year 28% of memory sales in China were 14nm or below, which implies that ~75% were above 11nm, which justifies considerable spending by the state and local governments to fill demand. It seems the Chinese government is feeling sure enough that it can fill the Micron gap with other (non-US) vendors, and eventually fill it itself that it is willing to give the US a taste of its own medicine, a ban with little technology substance and lots of enmity and politics.
According to the review, the Micron products did not pass the review and ‘pose a major security risk to the country’s critical information infrastructure supply chain’. According to Chinese Network Security law, operators of critical information infrastructure in China should stop purchasing Micron products. The office added “China firmly promotes high-level opening up to the outside world. As long as it abides by Chinese law and regulations, companies from all countries and various platforms are welcome to enter the Chinese market.”
The US DOC responded with, “We firmly oppose restrictive measures that have no factual basis., while Micron was said to have received notice from the China Cyberspace Administration concerning the review conclusion and would evaluate the conclusion and follow-up options but fell short of acknowledging that it would file a complaint, indicating “We look forward to continuing our discussions with Chinese authorities.” As Micron is the world’s 3rd largest memory supplier, behind Samsung Electronics (005930.KS) and SK Hynix (000660.KS), with a ~25% share, and generated ~$3.3b in sales to Chinese companies last year, the impact will be felt in the US, while South Korean companies will likely pick up much of the slack.
China is certainly in a less advantageous position than the US when it comes to semiconductors, as it remains years behind the US and others in terms of semiconductor technology and is further limited as to advanced lithography equipment sanctions, and there is little chance that the Chinese government will hit its goal of 70% of Chinese demand being satisfied by Chinese producers. That said, China’s internal production of its semiconductor memory demand has increased from ~8% in 2020 to 10.7% in 2021 and 16.2% last year., and even with the US ban on DUV tools, China can still buy tools for memory nodes 11nm or above. Last year 28% of memory sales in China were 14nm or below, which implies that ~75% were above 11nm, which justifies considerable spending by the state and local governments to fill demand. It seems the Chinese government is feeling sure enough that it can fill the Micron gap with other (non-US) vendors, and eventually fill it itself that it is willing to give the US a taste of its own medicine, a ban with little technology substance and lots of enmity and politics.
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