Micron Stock Recovers From Monday’s Lows as Analysts Assess China Ban’s Effect

Micron Stock

Micron Stock (NASDAQ:MU)

On Monday morning, Micron Technology (NASDAQ:MU) was the technology sector’s lone decliner. Still, it had recovered off its lows by noon, trading down 2.3% despite the ban on its chips in China. Monday saw a slight decline in Micron stock.

After conducting a study in March, the Cyberspace Administration of China announced its conclusion: Micron’s products posed a cybersecurity risk and should be avoided by operators of China’s vital infrastructure.

Micron CFO Mark Murphy stated at J.P. Morgan’s Global Technology, Media, and Communications Conference on Monday that the possible effect on the firm relies somewhat on defining essential information infrastructure.

Murphy stated, “We have served customers and operated in China for over 20 years,” and added, “We remain unclear as to what security concerns exist, and we’ve had no complaints from customers on the security of our products.”

Micron has previously said that around 16% of its income comes from Chinese and Hong Kong-based enterprises.

“We have distributors that sell to China-headquartered companies,” Murphy said. “We estimate that roughly one-fourth of our total revenue comes from direct and indirect sales through distributors to China-headquartered companies.”

According to Murphy, the business expects China’s actions to affect revenue between a low single-digit percentage to a high single-digit percentage, depending on the definition of essential infrastructure.

The “worst but unlikely” loss was assessed by Bernstein at 11% of sales, with a more apparent effect of low single digits and “only in the near term.”

Mark Li, an analyst, estimated that the direct harm from the ban would be 2% (11% x 20%) of Micron’s sales in FY2022. That year, 20% of Micron’s revenue came from “enterprise and cloud server” clients.

That, however, hinges on competitors to Micron stock like Samsung (OTCPK:SSNLF), SK Hynix, and other non-China suppliers choosing to ignore pressure from the United States, which he finds very improbable.

According to Wells Fargo, mainland China accounts for almost 11% of Micron’s total sales. According to analyst Aaron Rakers, investors are left worrying about whether or not the crucial definition applies to consumer/handset/mobile device manufacturers, and “therefore, Micron’s sales into this end market may not be impacted.”

According to Citi’s Christopher Danely, the decision is “not a surprise,” it’s likely not the last salvo in the U.S.-China trade battle.

“We expected this and anticipate more moves from both sides and their allies,” Danely added, referring to the United States and China’s respective efforts to curb industrial espionage by the other. For its part, Citi doesn’t think this will have much of an effect on Micron in the near to 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.”

Monday saw minor shifts for Qualcomm (NASDAQ:QCOM) (-1%) and Nvidia (NASDAQ:NVDA) (-0.2%), two nearby businesses with a dependence on China. Midday saw a 1.5% increase for Advanced Micro Devices (NASDAQ:AMD).

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