On May 21, 2023, the Cyberspace Administration of China (CAC) announced that products sold by Micron Technology in China did not pass cybersecurity review, and that according to Chinese laws and regulations such as the Cybersecurity Law, critical IT infrastructure operators in China must cease their procurement of Micron products.
On May 29, the South China Morning Post (SCMP) made a commentary on this matter, indicating that amid the atmosphere of technology confrontation between China and the US, it is not surprising for American tech companies to face such a trade curb. Micron became the target because "it is a major US chipmaker that has not only filed multiple intellectual property lawsuits against Chinese companies but also frequently lobbied the US authorities to curb China's semiconductor industry."
This part of the SCMP commentary is not far from the truth. Micron, among all the memory makers around the world, has most often employed non-commercial competitive tactics against its competitors. It has extensively utilized measures such as patent infringement, lobbying for anti-dumping and countervailing duties to their fullest extent, taking full advantage of the US influence in international politics and its previous dominance in the global semiconductor market. No memory company in the world can avoid being troubled by Micron.
Even though Micron itself was involved in a DRAM antitrust case, the company finally was able to escape unscathed by using its familiar Leniency Program with the antitrust authorities. Micron's recurrent practices certainly make it more subject to retaliation, but it remains unclear whether the Chinese government ruled against Micron based on this factor.
The reason or justification as announced by the Chinese authorities for its ruling against Micron is perplexing, given the product nature of DRAM, which is considered a "commodity."
DRAM products have globally standardized specifications, such as DDR4, DDR5, LPDDR4, and other interface specs. Products of the same spec have identical standards for voltage, transmission speed, signal order, and other parameters, all of which are uniformly formulated by the Joint Electron Device Engineering Council (JEDEC), a global leader in developing open standards for the microelectronics industry.
In theory, a company's product with a specific interface can be directly replaced by another company's product with the same interface.
If Micron products were to deliberately add "features" that the counterparts of other companies don't have, the additional circuits are bound to take a big toll on its product cost. Accordingly, using this as the rationale or justification for China's trade ban on Micron is barely comprehensible to industry insiders.
What market responses will be triggered by China's curb on Micron products?
The current memory market is in a state of extreme recession due to sluggish PC and mobile sales, which is a shared sentiment of the entire industry.
Micron's business performance is clearly impacted by China's trade sanction in the short term, but there are several reasons why the influence of the sanction may not be as severe as imagined.
First is Micron's advanced preparedness. The China-US technology confrontations have been going on for several years. In particular, after entering into litigation with China's Jinhua Integrated Circuit (JHICC), it is unlikely that Micron would not have contingency plans in place. Otherwise, it would be operating too carelessly.
Second is Micron's traditional market strategy. For a long time, the company's market strategy has been to maximize profits instead of maintaining customer loyalty, as DRAM is considered a commodity. Since DRAM is a commodity, it is difficult to enhance customer loyalty through product differentiation, and therefore profit maximization is a reasonable market strategy.
Based on this market strategy, Micron's sales system provides a relatively high flexibility in shifting product sales targets.
Third refers to the commodity nature of DRAM. Due to the substitutability of DRAM, the component conversion cost is relatively lower for system makers, and as long as there is a price difference, there is an incentive for DRAM conversion. Accordingly, the net effect of the China trade curbs on Micron is the renegotiation and matching reshuffle between memory oligopolies and customers. Reestablishing connections and bargaining between customers and suppliers will incur transaction costs and take time, thus delaying the overall recovery of the industry.
For individual companies, they will experience some losses, yet not to the point of suffocation.
A commodity is like spilled water; it will flow somewhere. Look at Russian oil: despite being boycotted by so many countries, it is still selling well, isn't it?
Albert Lin is an advisor to DIGITIMES Asia and the chief supervisor of the board at the Taiwan Association of Quantum Computing and Information Technology (TAQCIT). He earned his Ph.D. in physics and started teaching at National Central University in 1988. He later worked in the semiconductor industry at ProMos Technologies as vice president and a member of the board.