On May 21, the Cyberspace Administration of the People's Republic of China issued an announcement titled "Micron's Products Sold in China Have Not Passed Cybersecurity Review", according to which some of Micron's products sold in China have failed the review after the national cybersecurity review, which has serious cybersecurity risks and may endanger the security of China's critical information infrastructure operations. As a result, the Cyberspace Administration of the People's Republic of China (CAC) required domestic critical information infrastructure operators to stop purchasing Micron products.
As soon as the news came out, the U.S. Department of Commerce issued a statement saying it "firmly opposes restrictions without factual basis," saying that China's ruling against Micron and the recent "raid and targeting of other American companies" are inconsistent with China's claims of open markets and commitment to a transparent regulatory framework. China's security review is not uncommon in global cybersecurity review cases, and many Western countries have their own cybersecurity laws, and some companies will be reviewed according to the actual situation.
(Data source: MIR Rui Industry based on public information)
01
If you can't bear it, you don't need to endure it anymore
After two months of review, Micron was not wronged, and for a long time Micron has been eating Chinese "rice", but still smashing China's "bowl". Micron has often worked with the U.S. government to crack down on Chinese companies, including suing UMC for stealing intellectual property and key technologies from its memory chips to Fujian Jinhua, blocking SMIC's loan from the Export-Import Bank of the United States, and putting Yangtze River Storage on a sanctions list.
(Data source: MIR Rui Industry based on public information)
In addition to the crackdown on companies, Micron only regards China as a distribution market, not only with little investment in China, but also withdrew the only R&D department and took away core members in early 2022, for fear that China would "steal" technology.
China has been Micron's second-largest market after the United States, and during a period of sluggish demand for global chips, the Chinese market helped Micron digest huge inventories, why Micron is so fearless.
(Data source: MIR Rui Industry based on public information)
With the development and growth of China's semiconductor industry, the United States has always regarded China as a thorn in the eye, and has introduced a series of bills, uniting Japan and South Korea, just to impose sanctions on China, in a vain attempt to prevent the development of China's chip industry, it is more common for Chinese companies to be included in the "blacklist".
(Data source: MIR Rui Industry based on public information)
On March 31, China announced a review of Micron, and on April 24, the United States immediately urged South Korea not to fill the gap in the Chinese market if China banned the sale of American chips. The U.S. government has openly encouraged companies such as Samsung and SK Hynix to stop increasing sales of Chinese mainland in a vain attempt to threaten China's handling of Micron.
02
The rise of domestic memory chips
China's decision to ban Micron this time is not impulsive, but the result of China's multifaceted considerations.
First, Micron's market share in the Chinese market is too high, threatening national cybersecurity.
China's reason for banning Micron's sale is that its products endanger the operational security of China's critical information infrastructure, which is not groundless, and is not China's "retaliation" against American companies, as the United States believes. The Regulations on the Security Protection of Critical Information Infrastructure issued by China's State Council in 2021 explain that critical information infrastructure includes important industries and fields such as public communication and information services, energy, transportation, water conservancy, finance, public services, e-government, and science, technology and industry for national defense. Once these fields are damaged, lose their functions or data is leaked, they may seriously endanger important network facilities and information systems related to national security, national economy and people's livelihood, and public interests.
From the perspective of downstream applications, consumer terminals and industrial-grade products such as mobile phones, computers, automobiles, servers, and base stations all need memory chips. Micron, Samsung, SK Hynix have long occupied more than 90% of the global memory chip market, which is not good news for China, which has a huge consumer market. Long-term dependence on the import of memory chips, not having its own chips means that China's network information security may be affected by the United States someday in the future.
In 2020, the FCC determined that Huawei "posed a threat" to US national security and accused Huawei of "backdoors" in its products without any evidence. Although this is a shameless act of the United States to suppress Huawei's entry into the US market, the "backdoor" problem is thought-provoking. "Backdoors" mainly refer to spyware-like features built into network devices, mobile phones, tablets, etc. These "backdoors" or "covert channels" can allow attackers to bypass normal security measures and encryption systems, gain access to users' sensitive information, and even take control of devices.
Micron's largest customers in China (ranked by revenue contribution) are Lenovo, Xiaomi, Inspur, ZTE, Coolpad, China Electronics and Oppo, which provide them with memory chips. Micron has always relied on the big tree of the United States to do whatever it wants, and if Micron really helps the US government steal Chinese network information one day, the consequences will be unimaginable. Although this is the worst-case scenario, it is impossible for China not to guard against it, and the current development of domestic brands is the right path for the future development of Chinese chips.
Secondly, some domestic memory chip manufacturers have gradually developed in recent years, such as the recently developed Yangtze River Storage.
At the end of November 2022, Yangtze River Storage overtook in the bend, jumped over the technology of NAND stacking 192 layers, successfully challenged 232-layer stacked NAND, and became the world's first manufacturer to break through 3DNAND memory chip technology above 200 layers, and countered the three giants of the United States and South Korea in technology. But China's success poses a huge threat to the U.S., which in December 2022 added China's Yangtze River Storage to the Entity List, and companies on the Entity List must obtain permission from Washington to obtain products involving U.S. technology, further limiting Yangtze Storage's expansion of production capacity.
The move by the United States in April to instruct South Korea to stop increasing sales in China was also intended to threaten China while the capacity of Yangtze River Storage has not yet been raised. But is the U.S. threat really useful?
Recently, the second phase of the National Integrated Circuit Industry Investment Fund Co., Ltd., Changjiang Industrial Investment Group Co., Ltd. and Hubei Changsheng Development Co., Ltd. became the new shareholders of Changjiang Storage, and the registered capital of Changjiang Storage increased from 56.27 billion yuan to about 105.27 billion yuan. The entry of large funds, the ban on Micron sales, and the breakthrough of Yangtze River storage technology all indicate that China has a new technological breakthrough in semiconductors, so it has the confidence to deal with the threat of the United States.
The game between China and the United States chip has entered a new stage, the United States continues to cooperate with Japan and South Korea to impose sanctions on Chinese semiconductors, or Yangtze River Storage is about to have a complete chip industry chain, and the expansion of production capacity is just around the corner.
03
China's memory chip market is facing a reshuffle
Micron is afraid that it will suffer the consequences
As the world's third-largest memory chip giant, Micron's ban on sales in China has had a multifaceted impact.
1. Micron will miss out on China's new energy vehicle chip market
Micron's products are mainly divided into four categories: Computing and Networking Business Unit (CNBU), Mobile Business Unit (MBU), Embedded Business Unit (EBU), and Storage Business Unit (SBU). According to the data comparison, EBU is Micron's fastest growing and more stable segment in the past two years, including memory and storage products sold to industrial, automotive and consumer markets.
(Data source: MIR Rui Industry based on public information)
With the continuous expansion of the new energy vehicle market, China, as one of the important new energy vehicle markets in the world, has a huge demand for automotive memory chips. In 2022, Micron will occupy more than 40% of the global automotive DRAM chip market share leading companies. The Micron ban may make Chinese automakers look for other chip manufacturers as alternatives, with Chinese automotive chip manufacturers benefiting the most, while Micron itself has lost China's automotive chip business, resulting in a loss of performance.
2. Delay the release of Micron inventory
In 2023, Micron's second-quarter financial report can be described as "bleak", with operating income of $3.693 billion, down 52.52% year-on-year, and a net profit loss of $2.312 billion.
A large part of this situation is due to the inventory backlog caused by the weakness of the global chip consumer market, which peaked in the first quarter of 2023, and Micron took a series of measures such as layoffs and slowing down the research and development process to cope with losses. For Micron, China's ban on the purchase of its chips is undoubtedly a blow.
3. Other manufacturers are expected to increase their market share
In 2022, Micron's operating income in Chinese mainland will be 3.311 billion US dollars, and after Micron withdraws from the Chinese market, these revenues are likely to be shared by Samsung, SK Hynix and domestic chip manufacturers led by Yangtze River Storage. Among them, Samsung and SK Hynix, the two old chip manufacturers, are the most beneficial, in 2022 the memory chip manufacturers are not in a very good situation, Micron's ban in China is expected to help the two companies release inventory and help their chip sales improve.
According to the global market share of DRAM and NAND in 2022, China's Yangtze River Storage and other domestic manufacturers have a combined share of less than 4.6%, although the position of the three giants in the global market is difficult to shake in a short time, but Chinese manufacturers have taken the first step towards good. In the face of competition from Samsung, SK Hynix and other overseas manufacturers, Chinese chip manufacturers want to expand their market share, and whether they can expand production capacity in a short period of time is a key factor.
END
China's ban on Micron's sales is China's counterattack to US chip sanctions, the measure also sounded the alarm to chip companies around the world, national security is the bottom line, the Chinese market will not rely on the products of any overseas company forever, China has the strength of self-developed chips, Yangtze River Storage 232 layer 3DNAND is an example.