On Tuesday, Idaho-based chipmaker Micron announced that it is once again doing business with controversial Chinese conglomerate Huawei. The firm revealed that it found a way around the Trump administration’s blacklisting of the Sino technology company. CEO Sanjay Mehrotra explained the company conducted a review of the government’s new rules and found some of its products were exempt from the ban.
As a result of Mehrotra’s announcement, Micron’s stock surged by 11 percent.
The Trade War Workaround
Micron didn’t provide details on how it got around Washington’s prohibition of American companies doing business with Huawei.
In May, the U.S. Department of Commerce put Huawei on an “entities list” of companies that it considered to be threats to national security. As a result, the agency barred American businesses from selling to Huawei without its expressed approval. Consequently, Google, Intel, and Micron ended their business relationships with the Chinese telecommunications company.
Based on the Mehrotra statement, instead of securing government approval, Micron found a loophole to the trade prohibition. Stifel, Nicolaus & Company analyst Kevin Cassidy told Bloomberg that the company might’ve found its chipsets aren’t as American as it initially thought.
Washington’s ban mandates that semiconductor firms can’t sell to blacklisted companies if their chips are at least 25 percent American in origin. Therefore, if some of Micron’s chips are based on foreign patents, the company is theoretically free to sell them to Huawei.
However, as the Trump administration has taken a hard line against the embattled telecom since the summer of 2018, it may take a dim view of the U.S. chipmaker’s actions.
Nevertheless, Micron’s sidestepping of the U.S.-China trade war couldn’t have come at a better time for America’s largest memory manufacturer.
Before its surprise announcement, the Midwestern tech company was facing significant financial challenges. On June 11, The Burn-In reported that Micron quietly cut staff at its flagship Boise manufacturing plant due to declining sales. As the firm derived 13 percent of its revenue from doing business with Huawei, its government blacklisting was devastating.
Furthermore, two Chinese tech corporations announced plans to begin manufacturing DRAM and NAND memory chips last week. In doing so, the two companies establish themselves as direct competitors to Micron’s business in the region. With the Sino-American trade war already cutting into its profits, market analysts predicted Micron would suffer a 23-47 percent drop in revenue for the year ending 2019.
However, industry experts made those forecasts when the government ban forced Micron out of Huawei’s supply chain. Now that it’s resumed selling chips to its old client, the firm’s future looks much brighter.