U.S. Sanctions Easing Gradually
Micron Technology, the world’s third largest memory semiconductor company in the United States, has officially announced that it will resume trading with Huawei of China in 2020. After six months of preparation, the chipmaker will supply memory semiconductors for smartphones and servers to Huawei.
Micron noted in a conference call on Dec. 18 (local time) that the U.S. administration's sanctions on Huawei were being gradually eased. "We obtained a license to supply new products to Huawei for its mobile and server businesses," Micron CEO Sanjay Mehrotra said. He forecast that Micron will be able to resume exporting chips for mobile devices and servers in two quarters.
“Sanctions have not been lifted for all products, but the U.S. government's position on U.S. companies’ trade with Huawei is changing,” Mehrotra stressed, describing the change as a positive development. Micron's earnings have been sluggish throughout this year due to the U.S. government’s sanctions on Huawei. Its June-August sales stood at US$4,870 million, down 42 percent from a year ago, and its operating profit plunged 84 percent to US$694 million.
The resumption of trade between Micron and Huawei is interpreted as a sign that tensions between the two countries have been resolved by the recent first-stage U.S.-China trade agreement. The U.S.-China trade dispute triggered drops in semiconductor demand and prices, putting the semiconductor market in a slump and chipmakers in a quandary this year. In the fourth quarter, Micron's sales hit only US$5.1 billion, down 35 percent from a year before, and its operating profit declined 85 percent to US$594 million. U.S. sanctions on Huawei led to a sharp drop in demand from China, the world's largest memory semiconductor consumer, and negatively affected the earnings of Samsung Electronics and SK Hynix as well.
However, the recent tension between the United States and China will gradually subside, signaling a recovery in the semiconductor market in 2020. In fact, on the day, Micron said that the memory semiconductor game would bottom out in the January-March period of next year. Although Micron forecast a recovery in the semiconductor market in the first half of next year, it was the first time that the U.S. chipmaker clearly stated the expected time of its earnings recovery. Its inventories are also on a steady decline. Micron said its quarterly inventories were US$4.9 billion, down from US$ 5.1 billion in the previous quarter and its inventory days were cut from 131 days to 121 days. Micron added that in the first and fourth quarter of next year, its inventory days will be further reduced to 110 days.
In addition, Micron said that NAND flash production will drop significantly next year, which will have a positive effect on the memory semiconductor market. Next year, DRAM production will rise slightly while NAND flash production will sharply fall, Micron added, forecasting an increase of a mid-10s percent in demand for DRAMs and an increase of a late-20s to early-30s percent in demand for NAND flashes. This means that Micron will refrain from newly investing in NAND flashes next year.
As large-scale NAND flash investments are being made by competitors such as Samsung Electronics, SK Hynix and Toshiba, Micron’s cut in production is expected to have a positive impact on supply and demand in the semiconductor market. Samsung Electronics will start a full operation of its second NAND plant in Xi'an in China in the first half of next year. Toshiba is currently converting its 2D NAND facilities to 3D ones and its Iwate NAND plant is expected to go into operation in the fourth quarter of next year. In addition, SK Hynix is preparing to expand its N15 factory, and China's YMTC is expected to grow enough to affect prices and supply in the global NAND market next year. Therefore, concern is growing over a glut of NAND flashes in 2020 despite a recent recovery in their prices.