US Export Restrictions Forced Micron to Halt Huawei Shipments Sept. 14
Micron halted shipments to Huawei Sept. 14 to comply with the newest Trump administration export restrictions imposed mid-August on the Chinese company (see 2008170043), said CEO Sanjay Mehrotra on a fiscal Q4 call. Huawei had been a large Micron customer, about 10% of sales in Q4 ended Sept. 3, he told investors Tuesday.
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The memory-chip supplier “had a one-month notice before halting shipments,” so there was “limited ability to shift supply to other customers,” said Mehrotra. Micron expects a “negative impact” to sales from the suspension in Q1 ending early December and “to a lesser extent” in Q2 ending early March, he said. “Our well-established relationships with mobile customers worldwide will allow us to offset the impact of these restrictions by the end of fiscal Q2.”
Micron can’t comment on other companies winning Commerce Department licenses to sell to Huawei, including Intel (see 2009240018), the CEO said. “We have applied for licenses, but we cannot speculate if and when those licenses will be granted.” If granted, future sales “will depend on what is Huawei’s demand at that point.” The goal is to have a “growing opportunity to engage again with Huawei,” he said. “We always want to have broad portfolio of products and a diversified set of customers. We have done well in this area over time, and as you can see, that even though largest customer in Huawei essentially in a very short period of time disappears for us in terms of revenue opportunity, we are able to adjust it given our portfolio and given our customer engagement with the rest of the customers.”
The “nature” of the semiconductor supply chain is that “it does take a while to shift that production” from one customer to another, said Mehrotra. “Even for other smartphone manufacturers in terms of filling any void created by Huawei, it does take them time to adjust things in the supply chain as well. So we will, of course, continue to work with the broad ecosystem of smartphone suppliers to address the future demand for smartphones.”
Though Micron is “well-positioned to win” in 5G as a memory-chip supplier to all the major smartphone OEMs, smartphone demand “has been impacted by the pandemic in a meaningful way in calendar 2020,” said Mehrotra. The company expects a 10% global decline in unit shipments this year compared with 2019, he said. “But as we look ahead to calendar 2021, we expect a rebound in smartphone unit volumes.”
Micron expects 5G handset volume could grow to about 500 million units globally in 2021, from 200 million in calendar 2020, said Mehrotra. That’s about on par with Qualcomm’s forecast of 175 million to 225 million 5G smartphones shipping this year (see 2007300013). “These 5G products feature higher memory and storage content to enable enhanced consumer experiences,” he said.
In PCs, “the work-from-home trend drove strong demand for notebooks” in the September quarter, “with pockets of non-memory component shortages in the supply chain,” said Mehrotra. The unanticipated spike in consumer demand for laptops as telework and remote-learning connectivity tools put CPUs and LCD display panels in short supply, reported market leaders Dell and HP in late August (see 2008280012). “End-market component shortages” in the PC supply chain has “some impact on the demand” when OEMs are “not able to procure all the components they need for their notebook and Chromebook builds,” he said.
Desktop PC sales are weak “due to pandemic-driven changes to customer buying patterns,” said Mehrotra. “Laptop demand continues to be healthy, supported by the work-from-home and shop-from-home trends." Gaming PC demand also is “robust,” he said. But Micron’s “short-term outlook has weakened due to a combination of factors” beyond the interruption in shipments to Huawei, he said. “The ongoing pandemic is taking a toll on certain segments of the economy,” including the physical workspace, he said. Enterprise demand has weakened due to lower tech spending and “somewhat higher inventories at certain customers,” he said.
Despite the demand weakness in the enterprise sector, “we continue to be disciplined on pricing, walking away from certain deals that are below our profitability targets,” said Chief Financial Officer Dave Zinsner. Q4 revenue of $6.1 billion was up 11% sequentially and 24% year over year, he said. Micron expects a 15% sequential revenue decline in Q1 to $5.2 billion, plus or minus $200 million, he said. The stock closed 7.4% lower Wednesday at $46.96.