What just happened? NAND flash manufacturer, Micron Technology, has issued a warning that the Chinese ban on selling its products to key domestic industries may have a more significant impact on its earnings than previously estimated. According to the company's latest revenue guidance, approximately half of its China revenue could be affected by the ban. This action was imposed by Chinese authorities earlier this year in retaliation for Washington's sanctions on Chinese companies.

While Micron had initially predicted that the ban would impact its revenues by only a single-digit percentage, it now estimates that the effect will be significantly greater, coming in at a low double-digit percentage of its total revenue. This revised guidance is bad news for the company's investors, who responded by selling off the company's stock en masse, causing it to drop about 2 percent after the news broke on Friday.

China imposed its ban on Micron earlier this year after the country's Cybersecurity Administration alleged that the company's products pose "significant security risks to China's critical information infrastructure supply chain, affecting China's national security." Following this negative assessment, Chinese authorities prohibited domestic operators of key infrastructure from conducting business with the American chipmaker. The exact threats that the Chinese authorities found in Micron's products, however, remain unclear.

Curiously, despite the Chinese clampdown on its business, Micron is proceeding with its planned investments in the country. According to Reuters, the company plans to invest 4.3 billion yuan ($603.8 million) in a chip packaging facility in the city of Xian. This investment is said to include the purchase of packaging equipment from a local subsidiary of Taiwan's Powertech Technology. Micron CEO Sanjay Mehrotra characterized the proposed investment as a sign of the company's "unwavering commitment to its China business and team."

Although China's restrictions on Micron are relatively recent, a Reuters report from earlier this year suggested that government agencies in the country had already been reducing purchases from the company for years. The report indicated that up until a few years ago, the Chinese government extensively used Micron's chips in its tax systems and surveillance networks. However, these purchases have dwindled in recent years, particularly after 2020.

China's action against Micron is a direct result of the deteriorating diplomatic ties between Washington and Beijing, which have led the U.S. to impose stringent sanctions against several Chinese firms, including telecom giants Huawei and ZTE. The sanctions have had a devastating impact, leading Huawei to report its most significant profit decline ever for FY 2022.