China bans Micron’s products from key infrastructure

This is an audio transcript of the FT News Briefing podcast episode: ‘China bans Micron’s products from key infrastructure’

Marc Filippino
Good morning from the Financial Times. Today is Monday, May 22nd, and this is your FT News Briefing.

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China has banned a top US chipmaker from key markets. Tech upstarts are taking on the titans of the defence industry.

Sylvia Pfeifer
They have shorter supply chains, you know, less bureaucracy. They have people working for them that have a bit of a sort of start-up like mentality.

Marc Filippino
And we’ll talk about Morgan Stanley’s outgoing CEO. But first, a little US politics. I’m Marc Filippino and here’s the news you need to start your day.

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This week, Florida governor Ron DeSantis is expected to file paperwork to run for president. DeSantis is a rising star in the Republican party. He’s also seen as the top challenger to former president Donald Trump. But DeSantis has fallen behind Trump in opinion polls. Trump now has more than 56 per cent of the Republican electorate. DeSantis trails with not quite 20 per cent. DeSantis is also facing pushback from some wealthy donors like Ken Griffin, the founder of the hedge fund Citadel. He’s among the donors who don’t like DeSantis’s increasingly conservative moves on social and cultural issues like abortion and they’re putting their checks on hold.

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Chinese authorities have banned products made by Micron from key markets. Micron is the biggest memory chipmaker in the US. And yesterday, officials in Beijing announced that Micron, “posed significant security risks to China’s critical information infrastructure supply chain”. The government ordered key operators to stop purchasing Micron’s products. The FT’s Richard Waters says Micron sells a lot to China, so the ban is probably gonna hurt the company.

Richard Waters
A quarter or more of their sales are going to China. Now what the Chinese authorities have said is critical infrastructure can no longer have Micron chips. And what is critical infrastructure? They haven’t defined it, but we anticipate that’s gonna mean anything in the financial sector, anything in the transport sector, potentially data centre infrastructure. So a wide range of applications here. But then beyond that, you know, the real danger again is that other manufacturers, anybody else in China is gonna say, you know, the signal here from the authorities is don’t buy Micron. And so if people start designing around Micron, then, you know, they’ve got a much bigger problem. So, you know, this is a fairly significant problem for them.

Marc Filippino
So, Richard, do you think there’s actually any threat from Micron or is this ban just another volley in the tit-for-tat between China and the US?

Richard Waters
So I think we have to be cautious here because the Chinese have not given any details. They began this review seven weeks ago. They said they were concerned about the network security that, you know, maybe Micron’s chips posed a threat to network security in China. But obviously, from the outside, it looks like tit-for-tat. It follows the US action late last year to block Chinese access to a whole, you know, range of very critical chip technology. And so the fact that China has responded without giving any details about what the problems are, you know, clearly looks like a direct political retaliation.

Marc Filippino
But you got to wonder, is China shooting itself in the foot with the Micron ban? I mean, it sounds like it will hurt Micron, but maybe other Chinese industries will suffer, too?

Richard Waters
The bad thing for Micron and the good thing for Chinese users of technology is that there are replacements for this technology. Memory chips are in many ways replaceable, interchangeable. The core technologies there are basically developed and produced by three or four big companies in the world. Samsung and SK Hynix in South Korea are Micron’s biggest rivals and produce very similar products. And so we have reported already in the Financial Times that US authorities are leaning on South Korea to make sure that, you know, this South Korean manufacturers don’t replace Micron, that South Korea doesn’t just fill the gap. But, you know, we’ll see what happens in practice.

Marc Filippino
Richard Waters is the FT’s West Coast editor. He covers all things tech. Thanks, Richard.

Richard Waters
Yeah, Marc. Nice to talk.

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Marc Filippino
The war in Ukraine is shaking up the defence industry. Long established companies like Lockheed Martin have found themselves competing with smaller companies that make drones and autonomous vehicles. To find out more, I’m joined by the FT’s industry correspondent, Sylvia Pfeifer. Hi, Sylvia.

Sylvia Pfeifer
Hi there. Hi, Marc.

Marc Filippino
Can you tell us about the various types of new technology that’s out there and what they’re being used for?

Sylvia Pfeifer
So there are things like loitering munitions, which are manned, portable, and they can orbit the battlefield for quite extended periods until targets are first detected and then they can engage with these. You have unmanned ground vehicles. I recently wrote about a company called Milrem Robotics, which is based in Estonia, and they have developed an unmanned tracked vehicle that can also help with the evacuation of troops. So a lot of robotics sensors and unmanned technology has come to the fore.

Marc Filippino
So what advantage do these newer guys have over the big players in the field? The biggest trenched defence giants we’re talking about.

Sylvia Pfeifer
A lot of these smaller technology-led companies, I guess they’re in the sort of sweet spot right now in terms of technical development. They are set up to be faster to market. They have shorter supply chains, you know, less bureaucracy. They have people working for them that have a bit of a sort of start-up like mentality. So the whole set up of these companies is different from your large typical so-called prime contractor or the companies that have existed for decades and are used to dealing with governments.

Marc Filippino
But the thing about start-ups that strikes me is that start-ups have a tendency to fail. They’re more risky by nature. If governments buy the products, do they know that the company is gonna be around for the long term?

Sylvia Pfeifer
The governments are all grappling with this. I spoke to people at the DoD in the US and also at the MoD here in the UK and they are all conscious of this issue and how can they diversify their industrial base to engage smaller companies. In the UK, the government has helped or have made it easier for small and medium-sized groups to bid for public sector contracts by changing processes. For example, they’ve included ensuring that payment will happen within 30 days. If you’re a large company, you know, you probably you can deal with it if you don’t get paid for two or three months. But if you’re a small company, you need the money coming in on a regular basis.

Marc Filippino
I wanna go back to the actual technology because it seems like more and more weaponry is unmanned. So, and I know this is gonna sound ridiculous, but it sounds like the warfare is increasingly looking like something out of, I don’t know, Terminator? How far off do you think we are from battles being completely unmanned?

Sylvia Pfeifer
Oh, I’m not gonna put a timeline out there. I don’t think we’ll see a Terminator on our streets any time soon.

Marc Filippino
That’s a relief.

Sylvia Pfeifer
If you don’t want Arnold Schwarzenegger out there. But there is a big debate and it’s already happening about the use of unmanned technologies on battlefields, especially if they’re armed. So, for example, in the UK, the government is working on something called the Global Combat program, which is about, you know, the sort of next generation fighter jet, which won’t just be a jet, but also have sort of swarming technology around the drones around it. And there is a debate about, you know, should this fighter, for example, be manned or unmanned? There is an ethical debate that I think will come more and more to the fore as these technologies get taken up by governments. Most of these companies that are working on these technologies do still stress that there is still a human at the end if something is armed or if something is going to be shooting some sort of weapon or bullets, there will still be somebody human at the end who’s gonna take the ultimate, the final decision whether to press the button or not.

Marc Filippino
Sylvia Pfeifer is the FT’s industry correspondent. Thanks so much, Sylvia.

Sylvia Pfeifer
Thank you.

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Marc Filippino
Before we go, one of the world’s biggest banks, Morgan Stanley, will soon have a new CEO. On Friday, the bank’s current CEO, 64-year-old James Gorman, told shareholders he’s leaving within a year. He said the bank’s board has identified three very strong internal candidates to be the next CEO. Gorman has been at the bank for 13 years and the FT’s Josh Franklin says it’s been a good run.

Joshua Franklin
He’s really brought the bank back after a lot of struggles during the financial crisis when the bank was close to going under. And he’s really pivoted away from investment banking and trading, which are still, you know, responsible for about 50 per cent of the bank’s revenues, but expanded a lot in newer areas like wealth management and asset management. And investors have really welcomed this strategic shift and rewarded him with a much higher market cap. And crucially, in terms of Wall Street bragging rights, Morgan Stanley is now worth more than Goldman Sachs’s.

Marc Filippino
So, Josh, what do we know about the three internal candidates who could replace Gorman?

Joshua Franklin
We understand that those three people are the co-presidents of the bank, Ted Pick and Andy Saperstein, and then Dan Simkowitz. Ted Pick, he also runs the institutional securities business at Morgan Stanley, which is basically investment banking and trading. Andy Saperstein runs wealth management and Dan Simkowitz runs the investment management business at Morgan Stanley. And now there’s gonna be this kind of 12-month period where everyone on Wall Street is gonna be trying to guess which of the three is the favourite and is gonna get it.

Marc Filippino
Josh Franklin is the FT’s US banking editor.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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