Micron: China Chip Fears Overblown

Chipmaker Micron Technology Inc. (MU) has confirmed a ban in China regarding the manufacturing and selling some of its products in the country, yet indicates that affected products represent just slightly more than 1% of annual sales.

The Boise, Idaho-based semiconductor manufacturer led the group of chip stocks that sank Tuesday, closing down 5.5%. Shares have rebounded about 1.7% as of Thursday morning at $52.41, reflecting a 27.4% gain year-to-date (YTD), compared to the S&P 500's 1.9% return over the same period. (See also: Micron Has ‘Storm Clouds on the Horizon’: MS.)

On Thursday, Micron indicated that a preliminary injunction by a court in China that bans its Chinese subsidiaries from doing some business in the country will hurt its current fiscal fourth-quarter revenue by roughly 1%. The company maintained its expected sales guidance within the range of $8 billion to $8.4 billion. The decision is a result of an ongoing dispute between the U.S.-based chipmaker and Taiwan's United Microelectronics (UMC) and Jinhua, the latter two which sought the sales ban on grounds that Micron allegedly violated its patent rights in the country.

Analyst: Injunction May Actually Improve DRAM Pricing

“Micron is disappointed with the ruling by the Fuzhou Intermediate People’s Court. We strongly believe that the patents are invalid and that Micron’s products do not infringe the patents. The Fuzhou Court issued this preliminary ruling before allowing Micron an opportunity to present its defense," stated Joel Poppen, Micron's senior VP of legal affairs and general counsel. 

Micron added that the ruling is inconsistent with providing a fair hearing and that the company will continue to "work aggressively" to defend against these "unfounded patent infringement claims."

Analysts at Macquarie chimed in on the news this week, indicating that "any potential impact to Micron's business is likely temporary." While the company generates about half of its revenue from China, sales from products related to the UMC litigation "amount to a much smaller portion of the overall revenue," wrote Macquarie's Srini Pajjuri. He suggested that restrictions in China could actually drive up the price of DRAM chips, in which Micron holds a 23% share of the global market. Micron indicated that UMC and Jinhua's claims relates to its Crucial and Ballistix-branded memory modules and solid state drives in China. (See also: Micron to Gain on Strong NAND-DRAM Trends.)