Micron Technologies
Analysts aren’t too concerned about a new injunction prohibiting Micron Technology Inc. from selling certain chips in China.
Following reports Tuesday saying that a Chinese court had issued a preliminary injunction against Micron resulting from a patent dispute, several analysts doubted the legal action would hurt Micron much and suggested investors buy the stock amid the recent weakness.
The injunction will likely cause near-term volatility for the stock, but in the end, China can’t really grow their cloud-computing capacity using domestic vendors, Susquehanna Financial analyst Mehdi Hosseini told MarketWatch.
“This preliminary injunction is all about trade war,” Mehdi said in emailed comments. “Keep in mind over the past six months China has complained about high memory prices, and now there is a risk of increased escalation with trade war. At the end of the day, China knows they can not make memory chips on their own, but they are also willing to push back.”
Hosseini has a buy rating and an $80 price target on Micron.
Micron shares gained 2.2% to trade at $52.59 Thursday in recent activity, after touching an intraday high of $53.31. On Tuesday, shares sank 5.5% after reports of the injunction.
J.P. Morgan’s Harlan Sur, who rates the stock overweight, predicted that a settlement “may be likely” in the patent dispute and questioned whether China would really bar Micron from selling its memory-chip products there.
“We don’t believe it would be in the national interests in China to take nearly a quarter of global DRAM supply off the market as it could exacerbate an already tight supply environment, especially as domestic China memory makers are not ready to pick up the slack,” he wrote.
Sur said that he didn’t expect the legal issues in China to have a “significant impact” on Micron’s financials though the uncertainty about whether Micron will be treated as a bargaining chip in trade-war disputes “could cause near-term volatility in the stock.”
The note from Sur came before Micron on Thursday reiterated its prior revenue outlook of $8 billion to $8.4 billion for its current fiscal fourth quarter. Analysts surveyed by FactSet expect revenue of $8.25 billion. The company said it generates just over 1% of annual revenue from the 26 products covered under the injunction, namely “certain Crucial and Ballistix-branded DRAM modules and solid state drives,” and Micron expects the legal issues to negatively impact revenue by about 1% for the current quarter.
Evercore ISI analyst C.J. Muse, also writing before Micron issued its Thursday statement, called the intellectual-property suits from UMC and Fuijan “almost laughable.” The suits against Micron comes after Micron itself sued UMC and another chip makers in U.S. courts late last year.
Muse said that Micron and other U.S. chip companies could become pawns amid trade tensions, at least in the near term. “In the current environment, we would have to think European/ Japanese/South Korean chip makers will outperform US chip makers,” Muse wrote. “Longer-term, there is no change to our positive thesis on semis – we are amidst the third wave of compute led by AI/Big data that is driving increased silicon intensity globally.”
Muse rates the stock at outperform with a $100 price target.
The injunction, however, may have the unintended effect of boosting already high memory chip prices in a tight market, analysts speculated.
“While an injunction could potentially impact MU’s near-term sales into China, it could also drive up DRAM prices given the already tight supply situation,” said Macquarie analyst Srini Pajjuri in a note. Pajjuri has an outperform rating on the stock and an $80 price target.
“We estimate Micron accounted for 23% of DRAM market and 12% of NAND market globally,” Pajjuri said. “A prolonged injunction in China could result in potentially higher prices and/or shortages, especially in DRAM.”
Mizuho analyst Vijay Rakesh also raised the possibility that Micron could actually benefit from the China injunction.
“We believe a [supply-chain] disruption entering peak build season could potentially drive a spike in memory NAND/DRAM prices,” he wrote Wednesday. Rakesh has a buy rating on Micron’s stock and a $72 price target.
Of the 34 analysts who cover Micron, 26 have an overweight or buy rating on the stock, seven have a hold rating, and one has a sell rating, with an average target price of $81.54.
Micron shares have gained 72% over the past 12 months, while the PHLX Semiconductor Index has risen 27% and the S&P 500 has climbed 12%.