US memory-maker Micron has no idea why Chinese authorities have decided its products represent a security risk, or which customers it’s not allowed to sell to.
Micron CFO Mark Murphy on Monday told J.P. Morgan’s 51st Annual Global Technology, Media and Communications Conference that China’s Cyberspace Administration (CAC), which on Sunday announced the chipmaker had failed a security review, has offered no reason for that opinion.
The consequence of failing that review was a ban on Chinese “operators of critical information infrastructure” buying Micron products. But again, Murphy said the CAC has offered no detail on what that means.
“We continue to work constructively and respectfully with the CAC and provide any information they might need and to clarify what are the security concerns with our products,” Murphy said.
Absent a response from the CAC, the CFO therefore struggled to offer a precise impact of the ban’s likely impact on revenue. Noting that sales to companies headquartered in China and Hong Kong account for 16 percent of its cash flow, with more coming from distributors in China, Murphy estimated a range of impact between low single digits percent of total revenue, or high single digits at the high end.
The low-end impact estimate assumes China will ban “principally networking companies” from acquiring Micron products, while the high-end estimate would see what Murphy described as “different markets” come into play.
But the CFO said estimates don’t assume sales to smartphone manufacturers will be included in China’s bans.
Also on smartphones, Murphy offered a view that the market has softened a little. Micron previously assessed the market for the devices as flat or perhaps offering slight growth. Now, he said, he expects a small dip.
The PC market is also doing worse than previously expected, with Murphy saying Micron expects a mid-single-digit drop compared to its previous forecast of a slight slowdown.
The datacenter offers a better outlook, with demand for DDR5 RAM strong, and likely to accelerate as AI workloads expand.
Micron’s overall forecast, Murphy said, is for revenue and profit to improve as 2023 unfurls. The best gains should come in the second half of the year.
“Supply growth is slowing and demand continues to increase,” Murphy told the event. We are seeing pockets of price stabilization, and some isolated increases,” he added. Occasional price spikes on spot markets are encouraging, because they’re sometimes moving customers to buy ahead of possible further price rises.
“We feel we are closer to a period of sequential revenue growth,” Murphy opined.
But he wasn’t able to say how China’s decision might impact that view – in part thanks to the CAC’s opacity, and also because the regulator’s decision came very late in Micron’s quarter so it’s hard to assess what it will mean for future quarters.
Murphy said Micron intends to offer more detailed guidance on what China’s ban will mean for the chip shop’s finances during its next quarterly results announcement in June.
China’s decision to ban Micron complicates geopolitical matters considerably The ban has been interpreted as Beijing flexing its muscles with an act that harms a US business, and which comes at little cost to China as the products Micron makes are widely available – from both Chinese suppliers and from Korean giants Samsung and SK hynix which make such kit in China.
To win South Korea’s support of its tech export bans, the USA has allowed Samsung and SK hynix to maintain their Middle Kingdom operations, which now look likely to be in demand once Chinese buyers stop spending with Micron.
The US is therefore left having to worry about one of its own semiconductor giants, while trying not to upset an ally and ensure supply of crucial memory and storage products.
Diplomacy is not a simple game! ®