Analysis: China was reducing Micron chip purchases years before ban

United Microelectronics

24/05/2023 09:37

By Eduardo Baptista
       BEIJING, May 24 (Reuters) - In the years before China
declared U.S. firm Micron Technology's  MU.O  products a
national security risk, authorities were already scaling back
purchases of its chips, opting instead for domestic or South
Korean options, documents showed.
    A Reuters review of over a hundred public government tenders
found that while previously Chinese government authorities
regularly put out purchase requests for Micron's chips for use
in projects such as tax systems to surveillance networks, such
requests dried up dramatically from 2020.
    Instead, the bulk of memory chip purchases from such
entities have gone to domestic firms including Huawei
Technologies, server maker Inspur  000977.SZ  as well as
surveillance giants Uniview and Hikvision  002415.SZ .
    While China's sudden move this week to block key industries
from using Micron products appeared to be the result of
heightened Sino-U.S. tensions, the tender documents suggest
Beijing had laid the groundwork for years, in effect limiting
the disruptions caused by such a ban.
    At the same time, analysts say the biggest U.S. memory chip
maker had become an easier target if Beijing wanted to retaliate
against Washington's curbs on tech exports, given China's own
advances in memory chip production.
    "Most of its chips are replaceable with Chinese-made
alternatives, and for those that are not, there are other
foreign firms whose chips China can procure," said Alfredo
Montufar-Helu, Beijing-based head of think tank The Conference
Board's China Center.
    "So banning Micron’s products does not hurt China."
    China's cyberspace regulator, which conducted the review of
Micron's products, did not specify what security risks they
found.
    In response to Reuters' request for comment, a Micron
spokesperson said the company was "assessing next steps" in
response to the ban but did not comment on questions about
tenders.
    China's State Council did not respond to a request for
comment.
    
    DOMESTIC DRIVE
    It was not clear from the tenders why requests from
government-affiliated entities for Micron products dried up so
dramatically from 2020, including what effect the pandemic may
have had over that period.
    There were only four tenders that mentioned Micron products
over the past three years. They include a tender by a weather
bureau from Changzhou city, in the eastern province of Jiangsu,
for two dozen storage devices, and a hospital in Zouping city,
in the northeastern province of Shandong, for an image sensor.
    By contrast, prior to 2020, Micron's products were sought by
a range of local government bodies for projects that include
sensitive work such as upgrades of surveillance camera and
facial recognition networks in large cities.
    Micron chips, for example, were one of the many products
purchased in two big tenders offered in 2019 -- one worth 187
million yuan ($27.05 million) and the other 29 million yuan --
from police authorities in the southern factory hub of Dongguan.
    An August 2015 tender also showed that China's National Tax
Administration spent over 5.6 million yuan on purchasing almost
8,000 Micron chips for servers in its invoice system.
    China has for over a decade had a long-running campaign to
reduce reliance on foreign technologies, asking state affiliated
firms such as banks to switch to local software and promoting
domestic chip manufacturing.
    Beijing ratcheted up the campaign in 2020, when its leaders
proposed a so-called "dual circulation" growth model to reduce
reliance on overseas markets and technology. 
    Several tenders from the past year had "domestic made"
product requirement requests. 
    For example, a January tender for a "smart public security"
project in the southern city of Taishan explicitly requested
flash memory chips be domestically produced, assigning it almost
200,000 yuan.
    The project is made up of several hundred different pieces
of hardware and software, with Hikvision supplying 41 of these,
Huawei products accounting for 16, and an unspecified "domestic
made" request tagged on 288 other products.
    To be sure, government procurement databases often redact or
eschew sensitive details, and more information on Micron orders
is likely available on paid-for private tender document
databases.
    Chips made by South Korea's SK Hynix  000660.KS  and Samsung
Electronics  005930.KS  also continued to be included in large
government contracts, but often to supplement domestic products.
    Meanwhile, U.S. firms are still big players with Intel
 INTC.O  processors, Nvidia  NVDA.O  GPUs, and Dell
 DELL.N  servers purchased by hundreds of government bodies
since 2020.
    However, for Micron, the dramatic drop in government tenders
for its chips adds to the U.S. firm's troubles in China.
    In 2018, Micron became embroiled in a patent dispute with
Chinese state-backed chip maker Fujian Jinhua, accusing it of
conspiring to steal trade secrets.
    The dispute led to a temporary sales ban of Micron's main
products in China that year, and was followed by a shutdown of
its DRAM operations in Shanghai last year amid escalating trade
tension with Washington.
    China was once Micron's biggest market, generating half of
its $20 billion revenue in fiscal 2017 - that share shrank to
just 16% last year.
    "Micron has been in the ‘eye of the hurricane’ for quite
some time already, with its operations in China facing
increasing challenges over the past years," said analyst
Montufar-Helu.
        On Monday, Micron forecast a percentage hit to revenue
from China's action in the single digits.
($1 = 6.9121 Chinese yuan)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
How dependent is Micron on China?    https://tmsnrt.rs/3q0Q4fs
China's share less than a fourth    https://tmsnrt.rs/43bGxjK
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Eduardo Baptista in Beijing; Editing by Brenda
Goh, Miyoung Kim and Sam Holmes)
 ((Eduardo.MonteiroBaptista@thomsonreuters.com;))