Reuters

China`s ban on the use of US-based Micron Technology`s chips in certain sectors, announced on Sunday, is a stark reminder of risks facing the global chip industry as it braces for escalating Sino-US trade tensions.

China`s move against Micron, the biggest US memory chipmaker, was widely seen as retaliation for Washington`s efforts to restrict Beijing`s access to key technology. It came just a day after the Group of Seven (G7) rich nations agreed they would look to "de-risk, not decouple" from China, and as Washington pressures its allies to join it in restricting chip equipment exports to China.

Micron, which makes DRAM and NAND flash memory chips, is the first US chipmaker to be targeted by Beijing after Washington over the past year unveiled a series of export controls to block certain chips and chipmaking technologies being used to advance China`s military capabilities.

While the move could benefit Micron`s key rivals - South Korea`s Samsung Electronics and SK Hynix - in the near term, analysts said the growing geopolitical tensions cast a shadow over the industry as firms need to navigate rising uncertainties that could impact investment and supply chain management.

Such tit-for-tat policies will make investment decisions difficult for all chipmakers, said Kim Sun-woo, analyst at Meritz Securities in Seoul. "Companies have to address both production and sales. It would be better if production and sales happened in the same place, but this will keep dividing the two sides," he said.

Just days before the ban, Micron announced a plan to invest up to 500 billion yen ($3.7 billion) in Japan in extreme ultraviolet technology, becoming the first chipmaker to bring the advanced chipmaking technology to Japan. Tokyo is striving to reinvigorate its chip sector, while the United States is increasingly urging its allies to work together to counter China`s chips and advanced technology development.

Micron, which generated around 11% of its revenue from chip sales in mainland China in the last fiscal year, said it looks forward to continuing to engage in discussions with Chinese authorities, without commenting on whether Beijing`s decision might also affect the company`s investment plans for Japan in any way.

"It takes huge amounts of pre-emptive investment to be a chipmaker, and it takes five years, 10 years to break even on those investments, so putting predictability into jeopardy makes investments difficult," said Changhan Lee, vice chair of the Korea Semiconductor Industry Association.