Micron ‘Lawfully’ Began Resuming Some Huawei Shipments 2 Weeks Ago, CEO Says

An internal “review” at Micron Technology found the memory chip supplier could “lawfully resume shipping a subset of current products” to Huawei because they aren't subject to Commerce Department export administration regulations and entity list restrictions, CEO Sanjay Mehrotra said on a fiscal Q3 call. Micron reinstated those shipments about two weeks ago, he said on June 25. Micron suspended all Huawei shipments immediately after release of the May 16 notice from Commerce’s Bureau of Industry and Security placing the Chinese telecom gear giant and 68 of its non-U.S. affiliates on the Entity List (see 1905240044), Mehrotra said. Micron did so to “ensure compliance” with the restrictions and begin its review, he said.

Despite resuming the shipments, there remains “considerable ongoing uncertainty surrounding the Huawei situation, and we are unable to predict the volumes or time periods over which we’ll be able to ship products to Huawei,” Mehrotra said. Micron “will continue to comply with all government and legal requirements, just as we do in all our operations globally,” he said. It can’t predict whether “additional government actions may further impact our ability to ship to Huawei.” Former Commerce official Kevin Wolf is advising companies that "Huawei’s addition to the list did not prevent American suppliers from continuing sales, as long as the goods and services weren’t made in the United States," The New York Times said in a report about U.S. tech companies that still sell to Huawei.

If “not for the impact of Huawei,” Micron’s fiscal Q3 DRAM revenue would have increased sequentially, Chief Financial Officer Dave Zinsner said. Q3 revenue in the segment instead declined 19 percent from Q2 and was down 45 percent from Q3 a year earlier, he said. Huawei had such a big Q3 impact “because we could not ship at that time any product to them” from orders totaling nearly $200 million, Mehrotra said. Micron’s Q4 revenue with Huawei will be “less than what it otherwise would have been if Huawei was not on the entity listing,” he said.

Micron is “a supplier to all customers in all end markets across the globe, and our presence with several of those other customers is growing in terms of our penetration there,” Mehrotra said. “We will continue to work on adjusting those, but we would not be able to make up in fiscal year 2020" the revenue lost from Huawei if the BIS restrictions were to continue beyond fiscal Q4, he said.

Mehrotra thinks it’s “too soon to tell” how the BIS Huawei restrictions will impact the deployment of 5G, he said. “Keep in mind that in certain countries, 5G has already started to be deployed, such as Korea, and there are of course leading suppliers, other than Huawei as well, for 5G,” he said. “So it will remain to be seen how this deployment occurs over the course of the next few quarters, in particular here.” There’s “no doubt” that 5G “will bring about greater applications for memory and storage, not only in smartphones, but also in machine-to-machine” learning “on the IoT front,” he said.

The Section 301 tariffs on U.S. imports from China impacted Micron’s Q3 gross margins by fewer than 30 basis points, CFO Zinsner said. “We have successfully mitigated approximately 90 percent of the impact from tariffs,” he said. On the possible impact from the proposed List 4 tariffs, “we don't know for sure what the list looks like,” Mehrotra said. “We have a general sense, based on what we've seen, that there is minimal impact from the incremental list.” Most of Micron’s tariff exposure came with Lists 1, 2 and 3, he said.