TAIPEI/SHANGHAI (Reuters) - A Chinese court has temporarily barred Micron Technology Inc (MU.O) from selling its main semiconductor products in the world’s biggest memory chip market, citing violation of patents held by Taiwan’s United Microelectronics Corp (UMC) (2303.TW).
The ruling, which was disclosed by UMC and its state-backed Chinese partner, slammed shares of Idaho-based chipmaker Micron, which gets half of its revenue from China.
The ban comes amid an escalating trade spat between Washington and Beijing that is spurring China to accelerate its goal of developing its own domestic chipmakers to curb the heavy reliance on U.S. firms like Micron and Qualcomm Inc (QCOM.O).
China is also investigating Micron and its South Korean rivals over price fixing allegations, amid a surge in prices of dynamic random access memory (DRAM) chips.
The Fuzhou Intermediate People’s Court issued a preliminary sales injunction against Micron that prevents it from selling 26 semiconductor products, including DRAM and NAND flash memory chips, in China, contract chip manufacturer UMC said in a statement late on Tuesday.
Micron said it had not been served with the injunction and would not comment further until it had reviewed documentation from the Chinese court. The court declined to comment on the case and said injunctions were not posted publicly.
The sales ban ratchets up trade tensions between Washington and China over wide ranging issues including intellectual property, autos and soybeans. The United States is set to impose tariffs on $34 billion (£25.75 billion) worth of goods from China on July 6, which Beijing is expected to respond to with tariffs of its own.
Beijing has made the semiconductor sector a key priority under its “Made in China 2025” strategy, which has shifted up a gear after a U.S. ban on sales to Chinese phone maker ZTE Corp (000063.SZ) underscored China’s lack of domestic chips.
Micron has been one of the firms caught in the middle.
The U.S. firm filed a civil lawsuit in December in California, accusing UMC and Chinese partner Fujian Jinhua Integrated Circuit Co of stealing design and manufacturing technologies related to its DRAM chips.
In its filing Micron said UMC - which is scaling up its China business and plans to list it in Shanghai - had poached key Micron employees with the aim of helping Fujian Jinhua improve its own DRAM technology. UMC has not commented on the poaching allegations. The case is still being heard.
UMC countersued in January, filing a patent infringement lawsuit against Micron in China, covering three areas, including specific memory applications and memory used in graphics cards.
Chinese foreign ministry spokesman Lu Kang, when asked by reporters at a regular briefing, said this was “an individual case about intellectual property rights protection” and that he did not think there was an “inevitable connection” between this case and current China-U.S. trade tensions
Li Yiqiang, partner at law firm Faegre Baker Daniels, said normally courts set a very high bar for granting injunctions in complex patent infringement cases but the trade tensions may have given the court more leeway in this case.
“In today’s environment, because of the tensions between China and the United States”, he added, local judges may feel more comfortable granting an injunction knowing they would “face less pressure from the higher courts”.
China is the largest importer of memory products, consuming 20 percent of the world’s DRAM, as it has yet to build up its nascent chip industry.
Fujian Jinhua says on its website it has invested $5.65 billion to build a chip fabrication plant in the city of Jinjiang to help realise Beijing’s ambitions of producing domestic IC chips.
The company also issued a statement on Tuesday saying the court had ruled against Micron. A company spokesman declined to comment further.
Analysts said the ruling would bolster Micron’s well-established rivals.
“This is an opportunity for SK Hynix (000660.KS) and Samsung (005930.KS), because the banned products are not what the Chinese can make on their own. So they have to import anyway,” said Greg Roh, an analyst at Hyundai Motor Securities. He added the news could boost sluggish DRAM prices.
Shares of Micron, which generated half of its $20.3 billion fiscal 2017 revenue from China, closed down 5.5 percent on Tuesday at $51.48.
UMC shares rose as much as 3.9 percent on Wednesday, before ending unchanged.
Reporting by Jessica Macy Yu in TAIPEI, Adam Jourdan in SHANGHAI and Sonam Rai in BENGALURU; Additional reporting by Ju-min Park in SEOUL and Ben Blanchard in BEIJING; Writing by Miyoung Kim; Editing by Muralikumar Anantharaman