Why Micron Stock Dropped This Morning
Key Points
The Trump Administration may permit Apple to buy memory chips from China.
ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies Corp (YMTC) are named as two possible suppliers.
Micron's market share is now at risk from Chinese competition.
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Micron (NASDAQ: MU) stock tumbled 5.5% in the first five minutes of trading Monday after tech news site WCCTech reported the Trump Administration has decided to permit Apple (NASDAQ: AAPL) to purchase memory chips from Chinese suppliers ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies Corp (YMTC).
Image source: Micron.
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What does this have to do with Micron?
Respectively, CXMT is a maker of low-cost DRAM chips, while YMTC manufactures NAND. Micron produces both kinds of memory chips. According to WCCTech, the DRAM and NAND that Apple might source from China would only be used in Apple products sold in China.
As such, this news isn't a global threat to Micron. It is, however, at least a threat to the company's market share in China, and perhaps in other countries to which China might ship Apple products, should those start to filter out.
What's next for Micron stock?
Not everyone thinks it's time to press the panic button. In a note on StreetInsider.com this morning, Lynx Equity Research analyst KC Rajkumar says calls for investors to sell Micron are an "overreaction," citing concerns about the quality of Chinese wares and the inability of CXMT and YMTC to scale production sufficiently to meet Apple's needs.
Lynx may be whistling past the graveyard here, however.
Is it true that Apple hasn't approved many CXMT and YMTC chips for use in Apple devices yet? Is it true they haven't scaled their production to the point they can steal appreciable market share from Micron yet?
Yes, both these things are true. But CXMT just finished raising $8.6 billion in a Shanghai IPO -- and plans to put that money to work immediately by ramping up production. I expect YMTC to follow a similar path.
Cheap Chinese chips are coming. Micron investors should be nervous.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.
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