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Micron falls 6% as China bans its products; analysts see short-term impact only

Published 05/22/2023, 06:05 AM
Updated 05/22/2023, 06:05 AM
© Reuters Micron (MU) falls 6% as China bans its products; Analysts see short-term impact only

Cyberspace Administration of China (CAC) said on Sunday that Micron’s products had failed its network security review.

As a result, the cyberspace regulator is moving to prevent national key infrastructure operators from using the company’s products. Micron (NASDAQ:MU) would lose access to sectors like telecoms, finance, and transportation as China’s definition of “critical infrastructure” is very broad.

"The review found that Micron's products have serious network security risks, which pose significant security risks to China's critical information infrastructure supply chain, affecting China's national security," CAC said in a statement.

Micron said last week it would start making next-gen memory chips in Japan. Bloomberg News reported the chipmaker will receive about $1.5 billion in financial incentives from Japan's government.

According to Bernstein, Micron generated around 11% of its sales from China in 2022. Including Hong Kong, Micron generated roughly 16% of total revenue, other projections show.

Bernstein analysts estimate that the impact will be measured in “low-single digits only in the near term.”

“The ban is only on "domestic critical information infrastructure operators" and other customers, especially those selling civilian products to other countries, are not legally required to do so,” they said in a client note.

On a more positive note, the analysts also argue that Micron could actually benefit from the “decoupling” trend.

“Similar to sensitive Chinese customers not buying from Micron, sensitive non-Chinese customers may prefer chips produced outside of China too. Whereas Samsung (KS:005930) and SK Hynix (KS:000660) have fabs in China, Micron has none, and arguably may gain more traction with these customers.”

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Citi analysts say the decision “will temporarily hurt Micron but won’t interfere with the DRAM recovery.” The CAC’s decision was expected “as the US seeks to slow China’s industrial espionage, and China retaliates.”

“[We] do not expect this to materially impact the company 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 US, which is one of their main markets,” they said in a note.

Micron shares are down 6% in premarket Monday.

 
 
 

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