Intel, AMD stocks dip as China initiates chip restrictions

Shares of Intel (INTC) and Advanced Micro Devices (AMD) closed Monday slightly in the red after China issued guidelines to phase out the use of US chipmakers' products in government servers and computers, according to a report from the Financial Times. The guidelines, aimed at boosting security within government systems, have approved only 18 processors, all of which are from Chinese companies.

This move is seen as a direct challenge to the dominance of American chip manufacturers as security tensions escalate between the US and China.

Yahoo Finance's Akiko Fujita and Josh Lipton break down the details.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith and updated by Luke Carberry Mogan.

Video transcript

- You've also got Intel off just about 3.5%. We want to get to the latest on that because Intel and AMD both of those stocks are sinking today after China reportedly planted guidelines to phase out the use of US chip makers in government servers and computers. Now this is according to a report from the "Financial Times." Yahoo Finance's Akiko Fujita joining us in studio with the details on this. Akiko.

AKIKO FUJITA: Good morning to you guys. Yeah, this certainly points to a further decoupling between the US and China. When it comes to critical tech infrastructure, as you pointed out, the "Financial Time" is reporting that China has introduced new guidelines that will phase out Intel and AMD microprocessors from government PCs and servers.

The FT reporting the guidelines for this new policy were actually unveiled back in December of last year, ordering government agencies and political parties to require, in their words, safe and reliable processors and operating systems. Translation, only parts from Chinese companies.

And all the FT reports there are 18 approved processors that includes chips from Huawei, as well, as state-backed Phytium. All of these, of course, comes as China looks to ramp up their chip production and design in the face of US export restrictions. Remember, the US has already restricted advanced chips, as well, as chip making equipment.

Now we should point out Intel and AMD sinking here because Intel, number one, gets 27% of their revenue from China, AMD 15%. There are still questions about how much of that is derived from government accounts. Microsoft's Windows operating system also set to be removed from government devices, at least, according to the FT.

For Intel, guys, this marks the latest setback. Remember last fall, they had to unwind or actually abandon this acquisition of $5.4 billion of Tower Semiconductor, which is an Israeli company. But China did not want to approve that.

So this really points to these chip makers being increasingly caught in the middle here. But it's going to be interesting to see how quickly China ramps up and how advanced their technology is because that's been the big question mark. Can they be self sufficient? China with this policy saying, essentially, over the next few years, we're going to move in that direction.

- I mean, social media chips, like it seems like there are more areas that this could broaden out to in terms of industries that could be impacted as a result of what has kind of permeated from a tit for tat type of US and China spat that's going on for years now, at this point.

AKIKO FUJITA: Yeah, although, I've been speaking to a lot of China experts about this. Like how does this broaden out?

- Sure.

AKIKO FUJITA: And it feels like it's still very much focused on critical tech infrastructure. Social media a little different because of all the data that's collected, but so far, it has really been focused on the semiconductor space.