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Tuesday, July 3, 2018

China Trade War Strikes Micron

We said a week ago on Monday to reduce China exposed tech stocks. Micron (NASDAQ:MU) is potentially the latest impacted by the US-China trade war.

News hit that they may lose their China business based on a patent lawsuit. China makes up 50% of Micron's business and, if true, looks like a trade war incited decision.

Competitor to Micron UMC claimed today that Micron will no longer be able to sell multiple DRAM and NAND products in China. Micron denied they were served such an injunction.

China Blows Back

Since the US administration upped the tariff ante to $200B China didn't answer directly. They did answer quietly in other ways when accepting Iran oil against President Trump's calls. They may have also let their Yuan drop even though they said they planned not to.

This Micron move, if UMC's statement is correct would be a direct blow back at the US hurting a key US semiconductor company.

China Front Runs Trump's Export Restrictions

If the Micron ban is true China would have front ran Trump's attempt to move legislation to restrict exports to China.  Micron could have been one of the companies at risk to have intellectual property stolen.  If this move is true, China would have accomplished the export ban first.

Hurts Tech

If true it shows how difficult a trade war with China can be given the potential dislocation of the supply chain.  Companies would have to find new suppliers and purchasers. It can disrupt costs and earnings for multiple quarters.

Drag Tech Stocks

If Micron confirms this news it will be negative for many other tech stocks with China exposure and specifically semiconductor companies.

Conclusion

We'd guess a decision in China's courts against Micron, if true, would have been trade war related. If so we could have a taste of what's to come. If true it would slice revenues from Micron and potentially other companies. Our call last Monday to reduce China exposed stocks helps avoid situations like this. Micron is down 5.5% on the news and if the news proves true we'd guess it and other tech stocks will be down further.


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