This story has been updated to specify revenue estimates for mainland China and correct the name of the conference Micron’s CFO is attending Monday.
Micron Technology Inc. shares were falling 4% in premarket trading Monday as Wall Street tried to determine the future impact of a failed China cybersecurity review on the chip company’s business.
While analysts said Micron
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derived about 11% of its revenue last fiscal year from mainland China, they also noted that gauging the likely impact to Micron might be more nuanced than a look at overall China revenue would suggest. That’s because China ordered critical information infrastructure operators in the country to stop using the company’s products.
See more: China tells its tech manufacturers to stop using Micron chips
The definition of critical information infrastructure companies isn’t entire clear, “leaving investors to focus on the potential that consumer / handset / mobile device companies may not fall under this definition and therefore Micron’s sales into this end market may not be impacted,” Wells Fargo analyst Aaron Rakers wrote in a note to clients, while reiterating an overweight rating and $70 target price on the stock.
Micron disclosed in a filing with the Securities and Exchange Commission that it was “evaluating what portion of our sales could be impacted by a ‘critical information infrastructure’ ban,” while noting that its chief financial officer would share more at a JPMorgan conference later Monday.
Bernstein’s Mark Li doubted that Micron would end up feeling a sting to the tune of 11% of its total revenue.
He noted that “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.”
Further, Micron generated 20% of its revenue last fiscal year from “enterprise and cloud server” customers “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%),” Li wrote, while maintaining an outperform rating and $80 target on shares of Micron.
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Baird’s Tristan Gerra warned that the ban “reduces visibility on the timing of a gross margin recovery for Micron.”
“The ban could result in additional write-downs, given it will contribute to a further increase of internal inventories, along with some market share loss,” he wrote. “Given the current oversupply environment, Micron’s competitors have plenty of inventories to respond to the incremental demand from Chinese customers. The move could also lead Micron to take further pricing action in order to gain some market share at non-China customers as it suffers an inventory shock near-term while the competition improves theirs.”
Gerra had a neutral rating and $60 target price on Micron’s stock.
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