Micron expects up-tick after Huawei licence application win

US semiconductor firm Micron Technologies has said it expects a greatly improved 2020 after US authorities granted the firm a licence to trade with its largest customer, Huawei.

Although Micron was not one of the worst impacted firms following the decision from the Government to ban any US company from working with Huawei, the firm’s earnings call in September showed the damage. Revenues for the final reporting quarter of 2019 stood at $4.87 billion, down 43% from the previous year. Being unable to trade with Huawei was a major contributor to this downturn.

During the September earnings call, CEO Sanjay Mehrotra said the situation might get worse, though with the new licences being granted, the team is optimistic once again.

“As previously disclosed, we are continuing to ship some products to Huawei that are not subject to Export Administration Regulations and Entity List restrictions,” Mehrotra said this week.

“We applied for, and recently received, all requested licenses that enable us to provide support for these products, as well as qualify new products for Huawei’s mobile and server businesses.

“Additionally, these licenses allow us to ship previously restricted products that we manufacture in the United States, which represent a very small portion of our sales. However, there are still some products outside of the mobile and server markets that we are unable to sell to Huawei.”

This is major news for Micron. Across the financial period for 2019, sales to Huawei accounted for 12% of total revenues. There are firms who are significantly more dependent on Huawei as a customer, though any accountant will tell you that losing a customer worth 12% of total revenues is a devasting impact to the spreadsheets.

Looking at the financials for the latest earnings call, total revenues stood at $5.1 billion, up 6% sequentially, but down 35% in comparison to the same period of 2019. This is unsurprising considering the situation, though it will get better. Lost revenues will not be recovered immediately, new products need to be qualified with Huawei’s mobile and server businesses prior to contributing to revenue, but that is the only dampener here.

The next three months are traditionally the weakest for Micron throughout the year, though CFO David Zinsner expects recovery to begin in the third quarter of 2020. This is when the renewed relationship with Huawei will start to show on the spreadsheets.

Although the trade conflict between the US and China is still raging on, Micron will be hoping this will be the end of the collateral damage impacted by the US Government. Theoretically, this nightmare is in the rear-view mirror for Micron.