China bans Micron Chips, saying they pose a 'national security risk'

Yahoo Finance's Akiko Fujita discusses China's decision to ban Micron Chips as economic tensions between the U.S. and China heat up.

Video transcript

RACHELLE AKUFFO: Right. A look at trouble for Micron. China is banning major firms from buying products from the chip giant, saying they pose a national security risk. This ban comes less than two months after Beijing announced an investigation on imports from Micron which, of course, followed the sweeping ban Washington put in place late last year on selling advanced chipmaking technology to China. Yahoo Finance's Akiko Fujita has the story for us. Hey, Akiko.

AKIKO FUJITA: Hey there. Well, no question this marks a dramatic escalation in this ongoing tit for tat between the US and China, and it comes just one day after G7 countries vowed to reduce their exposure to the world's second-largest economy, saying in their words, we're calling out China for what they characterize as economic coercion.

Now, China's actions today, specifically by the Chinese cybersecurity administration banned microchips Micron ships from being used in key infrastructure projects. In a statement, the CAC said their own review found that Micron's products have serious network risks, which pose significant security risks to China's critical information infrastructure supply chain. And you see that it sent shares of Micron down more than 3% right now.

Micron has since responded in a statement to Yahoo Finance saying, while they have received this notice here, they're evaluating the CAC's conclusion and assessing their next steps. Micron going on to say, we look forward to continuing to engage in discussions with Chinese authorities. As you pointed out Rachelle, this marks the latest push in an ongoing economic battle between the US and China, specifically over semiconductors.

Last fall, the US imposed a sweeping ban preventing American chipmakers from selling to the Chinese without a special license. Now, the question here is why was Micron specifically targeted? "The Wall Street Journal" reporting that that was because the Chinese believe the chipmaker specifically lobbied for that ban that we saw implemented last fall.

The Commerce Department, by the way, has also released its own statement saying that the restrictions have no basis, in fact, and the department will engage directly with Chinese authorities. The question is, what does this all mean for Micron's bottom line? Well, about 10% of their revenue came from China. And it's important to note the ban today is not an outright ban, it's still specifically about key infrastructure projects.

We're talking last year about $3.3 billion in revenue coming out of China. We have heard from Micron CFO, Mark Murphy, this morning saying he believes the impact will be in the low single digit percentage of the company's total revenue at the low end and high single digit percentage of the total company revenue at the high end. The fear, Rachelle, right now is that this could have a ripple effect and cause other Chinese companies to pull out of Micron altogether or stop buying Micron chips altogether as an effort to de-risk.

- And we do know that we were sort of expecting this sort of retaliation. And when you think of how vital chips are to both countries' economies here, where do you think the fallout ends? I mean, you have these two sort of-- this mutually assured destruction if they try and sort of take out each other's markets here. How do you think this ends up eventually?

- So you know, what's fascinating here is to see all the geopolitical chips moving, right? When you think about Micron and the chips that they supply to the Chinese market, well, you could argue that China has taken action against Micron because they know that the South Korean chipmakers like a Samsung, like an SK hynix can replace those Micron chips.

That puts South Korea in a bit of an awkward position because they are a close ally of the US, but this overall speaks to just the environment that we're in right now. The US drawing a line, calling on allies to say, you should come with us in a pressure campaign against the Chinese. There is still a lot of question about whether, in fact, China can be self-reliant. Our reports suggest they're not there just yet, but no question they are ramping up significantly because that pressure to not sell to China specifically on semiconductors is really ramping up.

- Indeed. Well, great stuff there. We appreciate that update. Yahoo Finance's Akiko Fujita, good to see you.