Wild week for Micron, front and center in U.S.-China trade war

Micron starred during a week that included President Trump's mention before the UN, an earnings call focused on China trade and a stock plunge to cap things off. (Micron)

Micron Technology and CEO Sanjay Mehrotra have assumed the roles, willingly or not, as poster children in the U.S. trade conflict with China.

It was a wild week. On Tuesday, President Trump singled out Micron in a United Nations address as an example of alleged intellectual property theft by a Chinese company. Then late Thursday, Mehrotra brought up China trade tensions in an earnings call. On Friday morning, Micron’s stock price nose-dived by 9% following a year of gains.

Micron, based in Boise, Idaho, treads the narrow path of many other U.S. electronics makers. It sees itself as eager to continue selling memory products to Chinese smartphone and device makers, but the company is also worried about the loss of intellectual property to Chinese companies. Micron and many other U.S. chipmakers are pinning great hopes on trade talks between the U.S. and China, set to resume on Oct. 10 in Washington.

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“It’s important the two countries come up with an agreement,” Mehrotra said on CBNC on Friday. “It’s important the two largest economies are able to work out their differences.” He called for “free and fair trade” between both sides, coupled with IP protections, but didn’t elaborate on how that might work.

Micron has 40,000 patents. “We will defend our IP,” he said. “It is an important principle for Micron.” Analysts familiar with chip trade with China have noted that Micron and other companies can fight IP theft allegations in Chinese courts, but find the process cumbersome and often resulting in unfavorable outcomes.

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As Mehrotra was speaking on TV, Micron’s stock plunged early Friday by 9% following its fourth fiscal quarter earnings call the night before. The stock saw a 50% lift throughout much of 2019, but Micron spelled out worries for the coming quarter on the call, which apparently led to the Friday decline. 

Micron’s worries are partly related to declining sales to Huawei, which have been stopped by U.S. officials who have blacklisted Huawei as a national security threat, placing Huawei on an Entity List that affects many U.S. chipmakers. In remarks on the Thursday earnings call, Mehrotra said Micron’s sales to Huawei in the fourth quarter that ended Aug. 29 “were down meaningfully” from anticipated. 

“We have applied for licenses with the Department of Commerce that would allow us to ship additional products, but there have been no decisions on licenses to date,” Mehrotra said, according to a transcript by The Motley Fool. “’We see ongoing uncertainty surrounding U.S.-China trade negotiations. If the Entity List restrictions against Huawei continue, and we are unable to get licenses, we could see a worsening decline in our sales to Huawei over the coming quarters.”

Of course, Micron has many other customers, including in China, that Micron hopes to continue to serve. And Mehrotra was generally upbeat in the earnings call, saying the fourth fiscal quarter results were ahead of expectations despite a “challenging environment.” Micron revenues in the fourth quarter were $4.87 billion down from $8.44 billion in the same quarter in 2018. For the entire fiscal year, revenues hit $23.4 billion, down from $30.3 billion in 2018. Even so, the company saw its shares rise more than 54% before the earnings call decline late Thursday and Friday.

“The long-term fundamentals are good,” Mehrotra said on CNBC on Friday, noting that 5G smartphones will drive increased sales of DRAM and flash memory. “I’m optimistic about industry fundamentals in 2020.”

One important reason Micron is getting attention for its role in the trade war is that President Trump singled out Micron in his United Nations address on Tuesday. President Trump depicted Micron as an alleged victim of IP theft in 2018 by a Chinese company, and then Micron was banned from selling its own goods in China. “But we are seeking justice,” Trump exclaimed, without elaborating on how he plans to seek justice.

According to reports, Micron has previously claimed Taiwanese chipmaker United Microelectronics worked with Chinese chipmaker Fujian Jinhua Integrated Circuit to steal intellectual property. Then a Chinese court temporarily barred Micron from selling 26 chip products in China after ruling in favor of United Microelectronics in a patent infringement case.

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