NVDA - Micron rises off Monday lows as analysts weigh impact of China ban
2023-05-22 12:50:49 ET
Micron Technology ( NASDAQ: MU ) was Monday morning's technology-stock outlier to the downside, but at midday it was recovering off the lows, down 2.3% after its chips were banned in China , a country making up a significant chunk of the chipmaker's total revenues.
The news came as the Cyberspace Administration of China concluded a March review saying Micron's products presented a cybersecurity risk -- and instructing China's critical infrastructure operators to stop using the products.
The potential impact to the company depends a bit on the definition of critical information infrastructure, Micron's Chief Financial Officer Mark Murphy said at J.P. Morgan's Global Technology, Media and Communications Conference Monday morning.
"We remain unclear as to what security concerns exist, and we've had no complaints from customers on the security of our products," Murphy said, adding the company has "served customers and operated in China for over 20 years."
The company has disclosed before that China- and Hong Kong-headquartered companies make up about 16% of Micron revenues.
"in addition, we have distributors that sell to China-headquartered companies," Murphy added. "We estimate that the combined direct sales and indirect sales through distributors to China-headquartered companies is about a quarter of our total revenue."
Depending on the definition of critical infrastructure, the company's estimating an impact from China's moves ranging from low single-digit percentage of total revenue at the low end to high single digits at the high end, Murphy said.
Bernstein estimated the "worst but unlikely" damage to 11% of revenues, with a more realistic impact of low-single digits, and "only in the near term."
"Micron had 20% of its revenue from 'enterprise and cloud server' customers in FY2022, and should we use this as the proxy of 'critical information infrastructure operators,' the direct damage from the ban will be ~2% (11% x 20%)," analyst Mark Li said.
That assumes that Micron rivals like Samsung ( OTCPK:SSNLF ), SK Hynix and other non-China suppliers ignore pressure from the U.S., which he thinks is unlikely.
Wells Fargo agrees that Mainland China contributes about 11% of Micron revenues. Analyst Aaron Rakers notes investors are left to focus on the potential that consumer/handset/mobile device companies might not fall under the critical definition, and "therefore Micron's sales into this end market may not be impacted."
The move is "not a surprise," Citi's Christopher Danely noted, and it's certainly not the last move in the U.S./China trade war.
"We expected this and anticipate more moves from both sides and their allies as the U.S. seeks to slow China's industrial espionage and China retaliates," Danely said. Meanwhile, Citi doesn't expect this move to make a material impact on Micron over the medium term "as Micron fundamentals are driven by the DRAM cycle and would note the other two DRAM manufacturers -– Samsung and Hynix -– are likely to continue to maintain their focus on the U.S., which is one of their main markets."
Other adjacent companies with a reliance on China were seeing smaller moves Monday: Qualcomm ( QCOM ) -1% , Nvidia ( NVDA ) -0.2% . Advanced Micro Devices ( AMD ) was up 1.5% at midday.
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Micron rises off Monday lows as analysts weigh impact of China ban