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What the "China Ban" Actually Means for Micron (MU) Stock

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Shares of Micron (MU - Free Report) opened higher on Thursday after the company went on the defensive in the wake of reports that it has been temporarily banned from selling 26 different semiconductor products in China.

News that a Chinese court had ordered Micron to stop selling some memory chips and solid state drives in the country following a patent infringement complaint sent shares of the popular tech stock down more than 5.5% on Tuesday.

The complaint came from Micron rivals United Microelectronics Corporation and Fujian Jinhua Integrated Circuit Co., highlighting the rise of domestic competition for chipmakers in China as the nation continues to build up its own semiconductor industry.

The ruling also spooked investors who have grown weary of relations between American and Chinese companies in the midst of an ongoing “trade war” involving the governments of both countries.

Micron responded to the ruling on Thursday, delivering its own official confirmation that the company has, in fact, been temporarily barred from selling certain products in China. Management said Micron will comply with the decision but firmly declared its innocence from any patent-related wrongdoing.

“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,” wrote Micron’s Joel Poppen, senior vice president of legal affairs and general counsel, in a statement.

“Micron has a long-standing history of successful business operations in China, including a significant assembly and test manufacturing facility in Xi’an, as well as deep relationships with many valued China customers. Micron will continue to aggressively defend against these unfounded patent infringement claims while continuing to work closely with its customers and partners,” the statement added.

Micron also attempted to down play the effect that the ban would have on its financial results. The firm said the affected products would represent just “slightly more than” 1% of its annual sales, while the injunction will hurt Q4 revenue by about 1%.

Micron continues to expect Q4 revenue to fall within its previously-guided range of $8 billion to $8.4 billon. This reiteration is likely to keep downward analyst estimate revisions at bay, which should encourage investors who had hoped for Micron’s solid revision trend to continue.

The company’s sales guidance and overall bullishness has resulted in Zacks Consensus Estimates of $8.22 billion in revenue and $3.30 per share in adjusted earnings for the fourth quarter. These results would represent year-over-year growth of 33.9% and 63.4%, respectively.

Within the past 30 days, Micron has seen six positive revisions to its earnings estimates for the current quarter and eight positive revisions to its full-year estimates. The company has seen no downward estimate revisions for these periods in that time.

A 1% hit to revenue might inspire slight adjustments to earnings estimates, but it is unlikely to have a material effect on Micron’s bottom line. Meanwhile, existing positive estimate revision trends have earned the company a Zacks Rank #1 (Strong Buy).

Continued regulatory headaches in China could be a cause for concern, but for now, investors should note that this roadblock will have a relatively minor impact.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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