Micron Technology (MU - Free Report) has been temporarily banned in China from selling 26 semiconductor products, which include dynamic random access memory (DRAM) and NAND flash memory-chips, per the company’s Taiwan-based rival United Microelectronics Corporation (UMC).
Reportedly, China’s The Fuzhou Intermediate People's Court has given its judgement against Micron, which was charged of patent infringement by UMC in January.
The US-based chipmaker has, however, denied receiving any such court order yet and refrained from making any comment either.
Nonetheless, shares of the company came under pressure following the news. Notably, Micron stocks fell as much as 5.5% to close at $51.48 on Jul 3.
Trade War Poses Concern
Interestingly, the news comes on the heels of the U.S. government’s recommendation to the Federal Communications Commission, through the National Telecommunications and Information Administration, to deny China Mobile’s license request to operate in the country.
We note that China earlier retaliated against Trump’s announcement of tariffs on $50 billion of Chinese goods with tariffs on U.S. goods worth $34 billion
The United State and China’s tit-for-tat trade war is a major overhang on technology companies, mainly semiconductor providers. This is because the United States is the largest semiconductor manufacturing country, with China being its biggest importer.
Bloomberg quoted Gartner analyst Roger Sheng saying, “As the trade war looms, both China and the U.S. are trying to get more cards in their hands for sure. Companies like Micron are right in the middle of the storm.”
China – A Significant Market
Micron has significant exposure to the Chinese market as the majority of its sales are generated from the region. Sales from China accounted for 51% in fiscal 2017. Sales display a rising trend when compared with the previous two fiscals (42% in 2016 and 41% in 2015).
Moreover, sales of $10.39 billion from China in fiscal 2017 increased nearly 96% from fiscal 2016.
Micron’s heavy dependence on China, therefore, makes us a little skeptical. The ongoing U.S.-China trade spat is anticipated to keep the company under pressure, at least in the near term.
Zacks Rank and Other Key Picks
Micron currently sports a Zacks Rank #1 (Strong Buy).
Other top-ranked stocks in the broader technology sector are YY Inc. (YY - Free Report) , Science Applications (SAIC - Free Report) and Verint Systems (VRNT - Free Report) all sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for YY, Science Applications Corporation and Verint is projected to be 26.4%, 5% and 10%, respectively.
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