July 5, 2018
It's no secret that Micron Technology Inc. (MU) is one of my favorite memory plays on the market right now. However, on Tuesday, MU shareholders got an unwelcome surprise when China announced that it has temporarily banned Micron from selling some of its memory chips.
The financial media immediately pounced on the news, with sensationalist headlines that painted a bleak picture for the chipmaker. "Chipmakers Are Caught in U.S.-China Crossfire," declared Bloomberg. Investors didn't like that, so MU shares pulled back.
Fortunately, there's much more to the story than meets the eye. So in today's blog, I'd like to review this so-called "ban," and what it really means for MU shareholders.
To make a long story short, Tuesday's "ban" was the result of an ongoing legal battle between Micron and competitor United Microelectronics Corp. (UMC), which is based in Taiwan. What started all of this is that UMC was actually accused of stealing Micron's memory chip trade secrets. So Micron sued UMC last year.
In retaliation, UMC filed a patent infringement suit against Micron, alleging that it violated its patent rights in China. On Tuesday, the Chinese court issued a preliminary injunction that temporarily limits Micron from selling 26 products. While UMC wasted no time in bragging about the decision, this really isn't as big of a deal as some are making it out to be.
The fact is that these products make up just over 1% of Micron's annual sales. In a statement released today, Micron stated that the injunction should only cut 1% off fourth-quarter sales. The company is still expecting revenue to range between $8.0 billion and $8.4 billion, which represents between 30.3% and 36.8% annual sales growth.
Meanwhile, analysts shaved off a little from their fourth-quarter estimates. The consensus EPS estimate fell from $3.36 to $3.32—just a 1.2% decrease. Analysts are still expecting Micron to post about 64% earnings growth for the current quarter.
So, Tuesday's pullback was clearly a knee-jerk reaction, and Micron is doing just fine. Personally, I used this as an opportunity to buy more MU shares on the dip. In addition to strong sales and earnings prospects, Micron is in the process of buying back $10 billion of its stock.
The bottom line is that MU is still an A-rated Strong Buy, and any near-term dips should be viewed as buying opportunities. I currently recommend MU in my Growth Investor and Platinum Growth Club newsletters, and we're sitting on nearly a 100% gain in both of those services. However, I see plenty of upside potential ahead for MU, so it's not too late to buy the stock now.