Intel, Microsoft Slip as China Blocks Foreign Chips, Software in Government Computers

Shares of Intel ( INTC ) and Microsoft ( MSFT ) slipped Monday, following a report that China is enforcing new restrictions on government purchases of chips and operating systems by foreign companies as it tries to boost its domestic tech sector.

The Financial Times said the enforcement of the new Chinese guidelines will affect American microprocessor manufacturers, as Beijing prevents their chips from being used in government PCs and servers. In addition, the regulations seek to replace Microsoft’s Windows operating system and foreign-made database software with those made in China.

The new rules for PCs, laptops, and servers were unveiled on Dec. 26 by the finance ministry and the Ministry of Industry and Information Technology. They require government departments to apply “safe and reliable” criteria for the processors and operating systems they purchase, according to the report. The same day, the China Information Technology Security Evaluation Center published a list of “safe and reliable” companies—all of which were Chinese.

The Financial Times said the new guidelines marked the most significant step yet by China to replace foreign-made tech products with those manufactured at home, as the U.S. has done, in the ever-growing trade dispute between the two countries.

The moves to block the use of foreign chips from government computers will affect U.S. firms. China was Intel’s largest market last year, providing 27% of its $54 billion in 2023 sales, while the country accounted for 15% of Advanced Micro Devices’ ( AMD ) $23 billion in 2023 sales, according to the report.

Intel shares slipped 1.6% to $41.89 as of 12:35 p.m. ET, while Microsoft was 1% lower at $424.41. AMD, however, was up 0.1% at $179.89.