BEIJING, May 22 (TMTPost) Shares of of Micron Technology Inc. fell as much as 5% in midday and settled around 2.9% lower on Monday, the first session after the U.S. memory chip giant was slapped by China due to security risk.

Source: Visual China

The Cyberspace Administration of China (CAC) announced on Sunday that it decided Micron failed its network security review on products, and asked operators of key information infrastructure in the country to stop purchase of Micron products in accordance with laws and regulations including the Cybersecurity Law. The recent review found that Micron’s products had “severe” cybersecurity threats, thus “posing significant security risks to China’s key information infrastructure supply chain”, and undermining the national security, according to CAC. The cyber regulator said its review conducted in March aimed to protect cyber security issues of any product from damaging the critical information infrastructure for the nation, which is necessary to safeguard national security. It added China firmly promotes opening up globally, and welcomes companies from any foreign countries and various offerings at any foreign platforms to enter Chinese market as long as they comply with the local laws and regulations.

Micron said it had received notice from CAC about review of its products sold in China, and looks forward to continuing to engage in discussions with Chinese authorities. The U.S. chipmaker expected its revenue to be hit by the sales restrictions in China. We currently estimated a range of impact in the low single-digit percentage of our total revenue at the lower end, and high single-digit percentage of total revenue at the high end, said the Chief Financial Officer Mark Murphy at a conference on Monday. Shares of the company pared losses following the executive’s remark.

A U.S. Commerce Department spokesperson responded late Sunday that the U.S. side firmly opposed restriction and called CAC’s claims “no basis in fact”, which is inconsistent with China’s assertions that it is opening its markets and commitment to a transparent regulatory framework. The United States will have to convince chip companies from allies such as South Korea not to fill the Chinese market as they worked together to address distortions of the memory chip market caused by China’s ban,  the spokesperson signaled in a statement.

The U.S. has serious concerns on China’s action against Micron, and the Commerce Department is communicating directly with the Chinese government, a State Department spokesman in a briefing Monday. The spokesman echoed the Commerce Department by noting the recent move inconsistent with Beijing’s assertion of opening for business and commitment to a transparent regulatory framework.

CAC’s cybersecurity review is necessary for protection of national security, and businesses operating in China need to conform with Chinese laws, Mao Ning, the spokesperson of China’s Foreign Ministry stressed at a press Monday. “We are firmly committed to advancing high-level opening up and fostering a market-oriented, law-based and internationalized business environment,” Mao said. “Foreign companies and their products are welcome to the Chinese market as long as they abide by Chinese laws and regulations.”

As to the U.S.’s request for the South Korean companies’ not to sell chips as an alternative of Micron products in China, Mao warns that such practice serves no one’s interest as it runs counter to the market economy principles and international trade rules, destabilizes global industrial and supply chains. Mao urged the governments and companies of relevant countries to work together with China to jointly safeguard the multilateral trading system and keep global industrial and supply chains stable.