As mentioned earlier, shares of memory-chip titan Micron Technology (MU) were among the biggest decliners in tech’s abbreviated trading session today, dropping $3, or almost 6%, to close at $51.48, following the revelation that its chips have temporarily been banned in China.
Among those first to respond from the Street, this afternoon, is Srini Pajjuri of Macquarie Research, who has an Outperform rating on Micron stock, who thinks the hit to Micron could be relatively small.
As related by Bloomberg‘s Ian King and Debby Wu, the announcement of the blocking of Micron’s chips was not actually made by a government agency, but by Taiwan-based, United Microelectronics, a company that Micron sued last year alleging theft of secrets, which was followed by UMC subsequently suing Micron for patent infringement. Micron so far hasn’t received any formal notice of a ban, it told the authors.
Pajjuri notes that Micron gets half its revenue from China, but he thinks the money it gets from products related to UMC litigation “amount to a much smaller portion of the overall revenue.”
“Based on the limited information, we believe any potential impact to Micron’s business is likely temporary,” writes Pajjuri.
Moreover, restrictions, if they are real, could potentially drive up DRAM prices, he muses:
While an injunction could potentially impact MU’s near-term sales into China, it could also drive up DRAM prices given the already tight supply situation. We estimate Micron accounted for 23% of DRAM market and 12% of NAND market globally. A prolonged injunction in China could result in potentially higher prices and/or shortages, especially in DRAM. While Samsung and Hynix could potentially fill some of the gap, it will likely take time and we do not see how further tightness and/or shortages are beneficial to Chinese smartphone, PC, and Server vendors as we head into a seasonally stronger 2H.
Pajjuri notes this action seems to have come particularly swiftly, leading him to speculate that “geopolitical issues” are behind the move.
The block, if indeed there is one, comes amidst consistent trade tension between the U.S. and China. On June 6, The Wall Street Journalhas reported, Chinese authorities raided the offices of Micron and its two DRAM competitors, Samsung Electronics (005930KS) and SK Hynix (000660KS).
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