China Bans Micron Chips: Trade War Accelerates

China accounts for 50% of Micron's revenue. China put an end to that today.

MarketWatch reports Micron Stock Dives as China Blocks Sales, other chip stocks join in fall.

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, 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, and a 1.5% gain in the S&P 500 index SPX.

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 Revenue by Country

Patent Issue?

Bloomberg reports Micron Chip Sales Banned in China on Patent Case, Rival UMC Says.

This is not a patent issue. This is further escalation of a trade war and it strikes smack at US giant Micron.

The headline may be correct, at least in terms of what China claims, but we know the real reason is an escalating trade war. The body of the article has some interesting details.

China’s Huawei Technologies Co. and ZTE Corp. are fighting U.S. government action that threatens to cut them off from U.S. suppliers and potential customers. On Monday, the U.S. moved to block China Mobile Ltd., the world’s largest mobile phone service provider, from entering the U.S. market, citing national security grounds. Meanwhile, Qualcomm Inc. is still waiting for permission from Chinese regulators to complete its acquisition of NXP Semiconductors NV. That delayed deal was scheduled to be closed at the end of last year and has been approved everywhere else in the world.

While their governments fight, companies face potential disruption of a complex supply chain that produces most of the world’s smartphones, computers and their components. For example, Qualcomm designs its chips at its San Diego headquarters, then has them manufactured in Taiwan, Korea and China. The semiconductors then become the most important electronic parts in phones that are mostly made in China and then sold worldwide.

Global Supply Chain Mess

Trump blocked China so China blocked Micron. That's the complete story.

Global supply chains will now be a mess.

Trump calls this "winning".

Fourth Quarter Recession?

If there is a 4.0% GDP print for the second quarter, and I highly doubt that, don't expect much of anything in the second half.

These tit-for-tat trade disputes will take away 100% of any gain from tax cuts. And the tax cuts were heavily front-loaded.

I would not be surprised in the least by a recession starting in the fourth quarter. All it will take is further escalation of the trade war.

Whenever the recession starts, don't expect the usual one-year warning following an inversion. It's likely to be very sudden.

Mike "Mish" Shedlock

Comments (13)
No. 1-13
lol
lol

trump will not allow Chicoms to remain in power in China or North Korea period.They will end up giving up communism and their nukes or give up selling all their shoddy over priced junk to Walmart and home depot.lowes.target u name it,choice is theres.

Realist
Realist

Lol. Xi will still be in power long after Trump is just a bad memory. Trump will probably be remembered for being the idiot that caused an escalating trade war which will cause a severe US recession.

thimk
thimk

how is china gonna meets its production schedules. ? if you need a new mobile phone better get it now OR anything else you need . We might see massive front running on products. But above all be a "patriot".

Six000mileyear
Six000mileyear

It will be interesting to see how quickly unemployment rises in China. Or if Walmart resorts to smuggling Chinese made goods into the US.

Mike6712
Mike6712

So Chinese courts will reverse themselves tmrw if Trump ends all of the new tariffs? That doesnt sound like a justice system to me, it sounds like another organ of the Chinese Communist party. Shutdown more trade with these tyrants and let wal-mart and the other retailers start manufacturing in places that have real patent and property rights, not to mention labor and environmental laws that the outsourcers hate so much.

Kinuachdrach
Kinuachdrach

What is the market telling us -- if we believe in the wisdom of crowds? Micron is shut out of 50% of its revenues, and its share price drops by … only 5% ???

While the pearl-clutchers are having an attack of the vapors, investors seem to be saying that this is not such a big deal. Short run, China needs those chips. Maybe China can buy equivalent chips from somewhere else -- at a price premium. And then Micron will sell the chips that formerly went to China to whoever just had his supply diverted to China -- and again, Micron will charge a price premium. It is surprising the stock price has not gone up yet!

Underlying all of this is the obvious fact that it is unsustainable for China to run such a large trade surplus indefinitely. If non-free-trading mercantilist China does not take steps to correct the imbalance, the rest of the world will.

Brian1
Brian1

It seems to me the question is whether Micron needs China more than China needs Micron. I suspect the latter. Westerners can survive a period of not having the latest iPhone much easier than the Chinese gov't can survive a period of unrest from a suddenly unemployed manufacturing base. If China replaces that missing supply of chips with their own homegrown knockoffs then they only prove the case against them for IP theft and disregard of the very trade agreements the West now seeks to enforce.

Those wringing their hands over this development and other attempts to rebalance trade might just be overexposed with a globalist portfolio.

Carl_R
Carl_R

"Trade wars are easy to win."

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"Trade wars are good and easy to win" to be more precise

Brother
Brother

They way to gain market share is to knock of the little guys first. China's state owned/subsidized chip plant wants to grow what better excuse is there?

MorrisWR
MorrisWR

Since last year I have been telling people we may no longer refer to tent cities as Hoovervilles but Trumpvilles. I do not understand the thinking of people who believe these tariff wars are a good idea.

Casual_Observer
Casual_Observer

The tariffs were supposed to be a negotiating tactic. It doesnt look that way anymore.

Memory is a commodity that China doesnt care about stealing. To truly stop China there should be a ban on all chips that aren't commodities especially for Chinese telecommunications networks.

Let the madness ensue.