US government imposes restrictions on Micron customer Huawei

New restrictions imposed by the U.S. government on Chinese manufacturer Huawei last week aren’t likely to affect Micron Inc. but could presage additional future restrictions that could impact the Boise-based chip manufacturer.

Jim Handy, a veteran Micron analyst and general director of Objective Analysis, based in Los Gatos, California, said Micron shouldn’t “suffer any more harm than it already has.”

“It only impacts chips designed by Huawei and its subsidiaries,” said Handy in an email message. “So the companies that are most likely to be impacted are foundries over the near term and U.S. tool companies over the longer term.”

Protecting national security

Micron, one of Boise’s largest employers, has been slammed several times in recent months by restrictions the U.S. government has placed on sales of technology products to Huawei, one of Micron’s biggest customers, Handy noted.

The Bureau of Industry and Security (BIS), part of the U.S. Department of Commerce, announced on May 15 plans to protect U.S. national security by restricting Huawei’s ability to use U.S. technology and software to design and manufacture its semiconductors abroad, in a statement.

“This announcement cuts off Huawei’s efforts to undermine U.S. export controls,” the department noted. “BIS is amending its longstanding foreign-produced direct product rule and the Entity List to narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.”

However, foreign-produced items are not subject to the new licensing requirements so long as they are either reexported, exported from abroad or transferred in country by 120 days from the effective day, assuming they had started production for items based on Huawei design specifications as of May 15, the department said. This is to prevent economic damage to foreign foundries that use  U.S. semiconductor manufacturing equipment, the department continued. That’s what allows Micron to still sell products to Huawei.

Micron said it wouldn’t comment on the Administration’s actions.

Further restrictions possible

While this particular round of changes might not affect Micron, future ones still could, Handy said.

“I am sure that the company is looking at this move and at past moves and is wondering what could happen next,” he said.

If other companies’ designs are restricted in the future, that could hurt the entire U.S. semiconductor industry, not just Micron, Handy warned. For example, Micron and other U.S. companies could be prevented from shipping chips to Huawei because they are built using U.S.-made tools. As those tools are also used by non-U.S. chip makers, that could also make semiconductor manufacturers stop buying U.S.-made tools, which, in the long run, could bankrupt that industry in the U.S., Handy said.

Previous effects

This isn’t the first time the U.S. government has limited sales to Chinese companies such as Huawei. In the third quarter of 2019, the company was also slammed when President Donald Trump limited transactions with Huawei, which analysts on a Micron earnings call said had amounted to about 13% of the company’s business during the previous quarter. While Micron was able to resume shipping some products to Huawei, the amount was likely to be less for the foreseeable future, Micron CEO Sanjay Mehrotra had said on the call, but he wouldn’t provide specifics.

In addition, Micron wrote down about $40 million of inventory related to Huawei, CFO David Zinsner said on that earnings call. Without the Huawei situation, Micron would have reached the higher end of its guidance, he said.

Most recent earnings

Micron announced earnings on March 5 for its second quarter ending February 27.

The company announced revenue of $4.80 billion versus $5.14 billion for the prior quarter and $5.84 billion for the same period last year; GAAP net income of $405 million, or $0.36 per diluted share; non-GAAP net income of $517 million, or $0.45 per diluted share and operating cash flow of $2.00 billion versus $2.01 billion for the prior quarter and $3.44 billion for the same period last year. With an emphasis on COVID-19, Huawei didn’t come up.