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Micron's Stock Drops After The China Ban

May 22, 2023
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Shares of Micron Technology Inc. experienced a 4% decline in premarket trading on Monday as analysts sought to assess the potential impact of a failed China cybersecurity review on the chip company's business.

While Micron derived approximately 11% of its revenue from mainland China in the last fiscal year, analysts pointed out that the actual impact on Micron might be more complex than simply looking at overall revenue from China. This is because China has ordered critical information infrastructure operators to discontinue using Micron's products.

The definition of critical information infrastructure companies remains somewhat ambiguous, leading investors to speculate on the possibility that consumer, handset, and mobile device companies may not fall under this definition. 

Consequently, Micron's sales in this particular market segment may not be significantly affected, according to Wells Fargo analyst Aaron Rakers. Rakers maintained an overweight rating and set a target price of $70 for the stock.

Micron stated in a filing with the Securities and Exchange Commission that it is currently evaluating the potential impact of a ban on its sales to critical information infrastructure operators. The company's chief financial officer is expected to provide further details during a JPMorgan conference later on Monday.

Mark Li of Bernstein expressed doubt that Micron would face an impact as substantial as 11% of its total revenue. He highlighted that the ban only applies to domestic critical information infrastructure operators, while customers selling civilian products to other countries are not legally obligated to comply. Li maintained an outperform rating and set a $80 target on Micron shares, suggesting a positive outlook.

Tristan Gerra from Baird cautioned that the ban introduces uncertainty regarding the timing of a gross margin recovery for Micron. Gerra stated that the ban could result in additional write-downs and contribute to increased internal inventories and potential market share loss. Given the current oversupply environment, Micron's competitors have ample inventories to fulfill the incremental demand from Chinese customers. 

The ban may also prompt Micron to take further pricing actions in order to gain market share from non-China customers, while it faces short-term inventory shocks as competitors improve their inventory position. Gerra maintained a neutral rating and set a target price of $60 for Micron's stock.

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