Micron expects revenue hit to quarterly results amid China ban

Micron expects revenue hit to quarterly results amid China ban

US-based Micron Technology on Monday forecast a revenue hit in the low single digits to high single digits after China’s ban on selling its memory chips to major domestic industries, marking the latest in the Sino-US trade dispute.

China’s cyberspace regulator said late on Sunday that Micron, the largest maker of memory chips in the United States, had failed its network security review and would bar key infrastructure operators from buying from the company.

It did not provide details about what risks it found or which company products would be affected.

Analysts said they saw limited direct impact on Micron, as most of its main customers in China are consumer electronics players, but warned that the move could prompt some companies to rid their supply chains of Micron products due to political risks.

Micron’s chief financial officer, Mark Murphy, told a conference on Monday that it was unclear what concerns Beijing had and that direct and indirect sales to China-based companies accounted for about a quarter of the chipmaker’s revenue.

“We’re currently estimating an impact range at the low single digit percentage of our company’s total revenue at the low end and the high single digit percentage of our company’s total revenue at the high end,” Murphy said.

The remarks helped Micron shares cut losses, with the stock shedding 3.4 percent after falling as much as 6 percent in premarket trade.

Beijing’s decision was contested by Washington, but it helped actions by Micron’s rivals in China and South Korea, which are seen as benefiting as mainland companies seek out memory products from other sources.

“We strongly oppose restrictions that have no basis in fact,” a US Commerce Department spokesman said on Sunday.

“This action, along with recent attacks and attacks on other US companies, is inconsistent with (China’s) claims that it is opening up its markets and committed to a transparent regulatory framework.”

Tensions between Washington and Beijing have grown in recent months following incursions and visits by Chinese officials to US due diligence firm Mintz Group and management consultancy Bain.

Micron is the first US chipmaker to be targeted by Beijing following a series of export controls by Washington on certain US components and chip-making tools to prevent them from being used to boost China’s military capabilities.

China launched the review in late March amid a dispute over chip technology and worsening relations between Washington and Beijing.

The move also comes shortly after Group of Seven nations agreed to “reduce risk, not decouple” economic engagement with China and as US President Joe Biden called for an “open hotline” between Washington and Beijing.

The US Commerce Department said it would speak directly with officials in Beijing to clarify its actions.

“We will also engage with key allies and partners to ensure we are well coordinated to address memory chip market distortions caused by China’s actions,” the department said.

While the Chinese statement and state media said Micron’s decision needed to be viewed as an individual case in the context of national security concerns, not geopolitics, prominent Chinese commentator Hu Xijin took a different note.

“Washington itself encourages US companies to do things that jeopardize China’s national security, so it suspects Chinese companies are doing the same,” tweeted the former editor-in-chief of the nationalist state tabloid Global Times. “The whole world should beware of America.”

Michael Hart, president of the American Chamber of Commerce in Beijing, said the ban had created uncertainty among US companies operating in China.

Hart said that “members are asking us two things: will they be targeted because they are Americans and how can they ensure they remain compliant in a business environment that appears to be increasingly influenced by national security concerns?”

Other US chipmakers with heavy exposure to China, such as Qualcomm, Intel and Broadcom, fell about 1 percent.

Rallying Chinese Chip Stocks

China’s announcement of its review of Micron helped boost shares in some local chip-making related companies, as state media reported that domestic players could benefit from the move.

Shares in companies including Gigadevice Semiconductors, Ingenic Semiconductor and Shenzhen Kaifa technology opened between 3 percent and 8 percent before paring gains.

Micron’s main rivals also saw their shares rise, with South Korea’s Samsung Electronics and SK Hynix up 0.9 percent and 2.1 percent respectively. They pared earnings later and closed up 0.2 percent and 0.9 percent as analysts expect a limited hit at Micron.

Both Samsung and SK Hynix had no comment.

“Because Micron’s DRAM and NAND products are much less servers, we believe most of their revenue in China will not be generated by telcos and the government. The ultimate impact on Micron will be very limited,” said Jefferies.

Bernstein said a 2% hit to sales was the most realistic estimate, as Micron’s exposure to the enterprise and cloud server segment is relatively small.

Beijing has broadly defined industries it considers “critical” such as communications and public transport, but has not specified exactly what type of business they apply to.

China, the world’s biggest buyer of semiconductors, has gradually reduced its reliance on foreign-made chips in a multiyear campaign to increase self-sufficiency.

© Thomson Reuters 2023

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