China's probe into Micron may benefit Samsung and SK Hynix

The Cyberspace Administration of China on March 31 said it launched an investigation into Micron's products in China on the grounds of "safeguarding supply chain security of critical information infrastructure," a move viewed as Beijing's retaliation against Washington's technological and strategic curb on China's development.

Though analysts hold different views on its impacts on Micron, many share the belief that the investigation may benefit Micron's South Korean competitors, such as Samsung Electronics and SK Hynix, in China.

In a research note, Bloomberg Intelligence analyst Paula Penkal said that the investigation could affect not just Micron's direct exposure to China, which accounts for 10.8% of its sales in fiscal 2022 (October 2021 to September 2022), but also customers who use its chips, spanning semiconductor, phone, and PC makers from Intel and Qualcomm to Apple and Dell. Penkal adds that this latest tit-for-tat in the China-US semiconductor trade war would likely be limited to direct sales initially, and may benefit Asian competitors Samsung and SK Hynix, which have manufacturing plants in China.

Seeking Alpha quoted Christopher Danely, an analyst at Citi, saying that China's probe is unlikely to impact Micron as the company's fundamentals are largely driven by the cyclical pattern of DRAM, and Samsung and SK Hynix are aligned with the US, not China. However, Danely believes that more curb and retaliative measures are expected from both sides.

Still, South China Morning Post quoted Hong Yanqing, a cybersecurity expert close to the Chinese government, saying that if Micron's products fail to pass the cybersecurity review, its customers in China will not be able to purchase Micron's products, even fined for previous purchases. According to Bloomberg terminal, Micron's China customers include Lenovo, Xiaomi, and ZTE.

South Korea, which saw its economy limp with chips slump for the past year, is watching the development of the investigation. Korea Times quoted a senior government official in South Korea saying that it is unlikely for China to apply any obvious retaliative measures against Samsung and SK Hynix as the duo contributes to China's efforts to increase its chip self-sufficiency. Samsung produces over 40% of its NAND flash in its Xi'an facility, and SK Hynix has production bases in Wuxi, Chongqing, and Dalian, all located in China. Furthermore, South China Morning Post quoted a Citic analysis saying that Samsung and SK Hynix could end up benefiting at Micron's expense.

Meanwhile, although the investigation against Micron may accelerate China's localization of memory products, memory buyers in China will have few choices other than Micron, Samsung, and SK Hynix, as China-based memory manufacturers either cannot produce advanced memories or are under Washington's sanctions to acquire equipment to produce leading-edge products.

Source: Bloomberg, April 2023