Micron says some Huawei shipments resumed, shares rise

(Reuters) – Micron Technology Inc said it had resumed some microchip shipments to Huawei Technologies Co Ltd and still expects demand for its chips to recover later this year, sending shares up as much as 10% late on Tuesday.

Micron Chief Executive Sanjay Mehrotra said the Idaho-based maker of chips for smartphones and other devices resumed shipping some chips in the past two weeks after it reviewed the U.S. ban on selling products to the China-based telecommunications company.

“We determined that we could lawfully resume shipping a subset of current products because they are not subject to export administration regulations and entity list restrictions,” Mehrotra said on a conference call with investors.

“However, there is considerable ongoing uncertainty surrounding the Huawei situation, and we are unable to predict the volumes or time periods over which we will be able to ship products to Huawei,” he added.

The Semiconductor Industry Association, of which Intel Corp and Micron are both backers, said some chips do not fall under the U.S. government sales ban.

Huawei has repeatedly denied it is controlled by China’s government, military or intelligence services.

Micron also beat analysts’ estimates for quarterly revenue and profit for the fiscal third quarter ended on May 30.

Following the results, shares in Micron rose as much as 10% to $35.95 in after-hours trading on Nasdaq.

‘ENTITY LIST’ IMPACT

Mehrotra noted that Huawei was Micron’s No. 1 customer and that the ban cost the company as much as $200 million in missed sales during the third quarter.

“Although the market is weak right now, fears have been overdone,” Mark Newman, an analyst with Bernstein, told Reuters.

Micron and other chipmakers suspended shipments to Huawei after the U.S. government on May 15 added the world’s biggest telecoms equipment maker and 68 affiliates to an “Entity List” – a move that bans the company from acquiring components and technology from U.S. firms without government approval.

The New York Times on Tuesday reported that Intel had also resumed shipping some products to Huawei. Intel declined to comment.

The industry association said in a statement: “As we have discussed with the U.S. government, it is now clear some items may be supplied to Huawei consistent with the Entity List and applicable regulations.”

“Each company is impacted differently based on their specific products and supply chains, and each company must evaluate how best to conduct its business and remain in compliance.”

In an interview, Mehrotra told Reuters that Micron did not work with other chipmakers or the U.S. government to conclude some chips could be shipped to Huawei, but rather had its own lawyers, as well as external attorneys, review publicly available regulations.

“Micron independently came to its determination that certain of our products were OK to ship,” Mehrotra said.

Stocks in chipmakers have fallen in recent months as demand for smartphones has declined and prices for DRAM and NAND memory chips sank due to an oversupply, adding to concerns that a two-year-long semiconductor upswing was coming to a halt.

To soften the blow from the market glut, Micron reduced its output to prop up prices and has been investing more in its next generation of chips. The company said on Tuesday it will cut output by as much as 10% to help bring its supply in line with market demand.

But Micron executives said they expected demand for its chips to recover in the second half of 2019. The company estimated fiscal fourth-quarter revenue of $4.3 billion to $4.7 billion, with a midpoint of $4.5 billion, nearly the same as analysts’ estimate of $4.56 billion, according to data from Refinitiv.

The company has also been clamping down on capital expenditures, a closely-watched metric in the cash-intensive chipmaking business. Micron said that fiscal 2020’s capital expenditures will be less than the $9 billion it expects to spend in fiscal 2019, well below its initial plans to spend $10.5 billion.

“The reduction in capex and further reduction in wafer starts is a meaningful positive for the industry,” Bernstein’s Newman said.

Net income attributable to Micron fell to $840 million, or 74 cents per share, in the third quarter ended May 30, from $3.82 billion, or $3.10 per share, a year earlier.

Revenue fell to $4.79 billion from $7.80 billion, beating analysts’ estimates of $4.69 billion, according to IBES data from Refinitiv.

On an adjusted basis, the company earned $1.05 per share. Analysts were expecting a profit of 79 cents per share.