Fireworks came early for shares of Micron Technology Inc. on Tuesday, following a report that a Chinese court had blocked sales in China of memory-chip products from the Boise, Idaho-based company.
Shares of Micron MU, -5.51% dropped 5.5% to close at $51.48 in Tuesday’s abbreviated session ahead of the July Fourth holiday, after touching an intraday low of $50.10. Shares are still up 25% for the year, compared with a 3.6% rise in the PHLX Semiconductor Index SOX, -1.82% and a 1.5% gain in the S&P 500 index SPX, -0.49% .
On Tuesday, Taiwan’s United Microelectronics Corp. 2303, -0.84% said China’s Fuzhou Intermediate People’s Court issued a preliminary injunction against Micron’s Chinese subsidiaries blocking sales of “PRC 26 DRAM and NAND-related items,” including certain solid-state hard drives and memory sticks.
“Micron has not been served with the preliminary injunction referred to in the statements issued by United Microelectronics Corporation (UMC) and Fujian Jinhua Integrated Circuit Co. (Jinhua) dated July 3,” the company said in a statement. “Micron will not be commenting further until the company has received and reviewed documentation from the Fuzhou Intermediate People’s Court of China.”
In March, Micron Semiconductor (Xi’an) Co. was served with a patent infringement complaint from Fujian Jinhua, and in April, Micron Semiconductor (Shanghai) Co. Ltd. was served with the same complaint.
Risks from China have been on the rise, said BMO Capital Markets Ambrish Srivastava, who has a market perform rating on Micron and a $63 price target. In a note dated July 2, Srivastava remarked that the biggest difference between Micron’s late June quarterly filing and its previous one was in the legal and risk section. Of note, Srivastava pointed out that Micron added the following to its risk factors section:
“In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities that is intended to advance China’s stated national policy objectives,” Micron said in its filing. “The activities by the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies.”
Other semiconductor stocks also suffered, as the fight between China and Micron is seen as a bellwether amid a trade tussle between China and the U.S., and China’s fight for advanced chip technology and knowledge. The PHLX Semiconductor Index closed down 1.8%, with almost all of that decline coming in the last hour of the session, after the news broke. Other chip stocks that declined just ahead of the bell included Intel Corp. INTC, -1.45% Nvidia Corp. NVDA, -2.23% and Qualcomm Inc. QCOM, -1.51% .
While China accounts for an estimated quarter of global memory-chip sales, half of Micron’s revenue comes from China sales, according to FactSet data. Another 12.5% comes from sales to Taiwan, according to FactSet.
Micron has been considered a pawn in the growing trade war between the U.S. and China, most notably in June, when Chinese regulators launched a probe into memory-chip pricing. Back in May, Micron announced an improved outlook for the quarter and a $10 billion share buyback program.
Separately, Micron announced late Tuesday it was entering into a $2 billion revolving credit facility that matures in 2023. Micron has been aggressively paying down its debt over the past year. Micron has $6.51 billion in debt outstanding, compared with $11.16 billion in August 2017, according to FactSet data.
Of the 34 analysts who cover Micron, 26 have overweight or buy ratings, seven have hold ratings, and one has a sell rating, along with an average target price of $51.80, less than 1% higher than Tuesday’s close.
