September 20, 2018 / 8:29 PM / a month ago

Micron shares slide as U.S. tariffs weigh on outlook

(Reuters) - Chipmaker Micron Technology Inc (MU.O) on Thursday said U.S. tariffs on Chinese goods would weigh on its financial results for as much as a year, sending shares down sharply.

The memory chipmaker, whose NAND and DRAM chips help power smartphones and servers, said that U.S. tariffs of 10 percent on $200 billion of Chinese goods that go into effect on Sept. 24 played a big role in a margin forecast that fell short of Wall Street expectations.

Chief Financial Officer David Zinsner said Micron expects to be able to work through the blow from tariffs but it will take up to a year.

“Clearly, tariffs are impacting us, probably to the tune of 50 to 100 basis points,” Zinsner said. “We are working on steps to mitigate that. That obviously takes some time.”

In China, Micron does not make chips but it does perform assembly and test operations, cutting chips to final size and packaging them. CEO Sanjay Mehrotra told Reuters in an interview that the costs of diverting some of that work away from China to avoid tariffs for U.S. based customers will hurt margins.

“We are of course very much focused on mitigating these tariffs by leveraging our global supply chain to bring in a product that is not made in China,” he said. “But there are certain costs associated with that.”

Micron did not say where it plans to move the assembly and test work, but it was unlikely to come to the United States because Micron does not have such facilities in the country. Micron does have assembly and test facilities in Singapore and other countries.

Micron still makes chips for cars and industrial equipment in the United States at a plant in Virginia where it plans to invest $3 billion, and company officials said chips coming from that plant face a minimal impact from tariffs.

Micron now sees gross margins in the current fiscal first quarter between 57 percent and 60 percent. The Boise, Idaho-based company expects quarterly revenue between $7.9 billion to $8.3 billion.

Analysts had been forecasting revenue of $8.4 billion in the first quarter and gross margins no lower than 59.6 percent, according to Thomson Reuters I/B/E/S.

Shares dropped 7.1 percent to $42.79 in after-hours trading.

Zinsner said the lower revenue forecast was partly attributable to a shortage of CPU chips for personal computers and laptops.

Several other technology companies such as Dell Inc [DI.UL] have also pointed to a CPU shortage weighing on revenue forecasts. Intel Corp (INTC.O) is the dominant supplier of such chips. Intel declined to comment.

Looming tariffs may have prompted customers to buy chips before the tariffs come into effect, analysts said.

“I think it has to do with some of the pull forward from the supply chain because of the China tariffs. One could surmise it is (tariffs) also driving high levels of inventory and lower revenue next quarter,” said Cowen analyst Karl Ackerman.

Earlier on Thursday, Micron shares had risen 2 percent to $47 in extended trading after the company reported fourth-quarter revenue and profit that beat analysts’ estimates, driven by demand for its memory chips from data centers and smartphones.

Micron has been benefiting from a global memory chip industry boom since late 2016, with strong demand for its products from smartphones and companies shifting to the cloud.

Net income attributable to Micron rose to $4.33 billion, or $3.56 per share, in the fourth quarter ended Aug. 30 from $2.37 billion, or $1.99 per share, a year earlier.

Net sales rose 38 percent to $8.44 billion. Excluding items, Micron earned $3.53 per share.

Reporting by Sonam Rai in Bengaluru and Stephen Nellis in San Francisco; Editing by Maju Samuel, Lisa Shumaker and Cynthia Osterman

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