Amid a steep memory market downturn, the Chinese government’s ban on domestic infrastructure companies purchasing memory chips from U.S. supplier Micron is unlikely to have a major impact on the country’s electronic equipment production in the near term.
However, shifting market conditions starting in late 2023 could change the calculus for China, with rising demand and falling inventory levels stressing the country’s capability to source sufficient memory chip supplies.
The Trade War Continues
The ban comes on the heels of U.S. moves to restrict exports of advanced semiconductors and chip-making equipment to China. China cited national security risks as the motivation for levying the restrictions, although the move is widely perceived as a retaliatory measure. The impact on Micron could be significant.
The company stated that about 25% of its revenue originates from Chinese companies. Micron is already in a vulnerable state, with the company reporting revenue fell by 53% in its fiscal second quarter ending on March 2, compared to a year earlier.The move comes at a time when memory chip availability is high and pricing is low, giving China some wiggle room when it comes to sourcing parts.
Memory market conditions have favored buyers since May 2022. However, the purchasing environment is improving even more in the first half of 2023. The Commodity IQ Memory Demand Index projects that sourcing activity will plunge by 35% in the second quarter and 29% in the third quarter. For all of 2023, memory sales are set to decline by 35.5%, according to one market watcher, due to declining demand for PCs, servers and smartphones.
This is resulting in eroding prices, with the average selling price (ASP) for DRAM expected to drop by as much as 15% in Q3. Overall memory capacity utilization has fallen, with Micron stating its memory wafer fab capacity is at a record low level.
Will China’s Strategy Pay Off?
For China, this is an opportune time to reduce memory sourcing from a major supplier like Micron, with copious availability of chips from other suppliers. However, this situation may flip for China as demand rises and availability tightens. The memory inventory overhang is expected to be resolved by late this year.
Moreover, end demand is expected to recover late this year, driving up memory sales. As a result, global memory market revenue is set to rebound in 2024, with a 70% increase expected, according to one researcher. Under these conditions, China may have challenges making up for the lost Micron supply.
This situation could become acute if leading memory makers Samsung and SK Hynix refuse to fill the supply gap – possibly in response to U.S. pressure. Moreover, China’s leading memory supplier, Yangtze Memory Technologies Corp., has insufficient capacity to offset the banned supplies from Micron.
While the ban may allow China to punish Micron and the U.S. with a limited downside in the near term, the country’s electronics industry may feel the pain in the future. Specifically, there is a gap of 556,000 ounces of platinum needed in 2023 that isn’t available, therefore the components in the headline are at risk for shortages.