Micron Becomes Latest Victim Of Trade War: Shares Crushed As China Bans Chip Sales

Micron just became the latest victim of Trump’s trade war, after a report that a Chinese court has “temporarily” banned sales of its chips.

Of course no one knows exactly what “temporarily” means here because, presumably, whoever handed down this order is asleep in China right now, but suffice to say this is the opposite of what investors wanted to hear as the Friday deadline for the imposition of tariffs looms large.

Here’s the announcement from rival UMC:

Hsinchu, Taiwan, July 3, 2018 — United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) (“UMC”), a leading global semiconductor foundry, today announced that the Fuzhou Intermediate People’s Court of the People’s Republic of China (PRC) today issued a preliminary injunction against Micron Semiconductor (Xi’an) Co., Ltd. and Micron Semiconductor (Shanghai) Co., Ltd. enjoining Micron from offering to sell, and selling in the PRC 26 DRAM and NAND-related items, including certain solid-state hard drives (SSD) and memory sticks in China.

Jason Wang, co-president of UMC, stated, “UMC is pleased with today’s decision. UMC invests heavily in its intellectual property and aggressively pursues any company that infringes UMC’s patents.”

UMC filed patent infringement lawsuits against Micron with the mainland China courts in January, 2018, covering three areas, including specific memory applications related to DDR4, SSD and memory used in graphics cards. With today’s ruling, Micron’s products now face injunction for violating UMC’s patent rights in a court verdict that applies to all of mainland China.

UMC has devoted a great deal of resources and manpower to researching and developing semiconductor manufacturing technology. Its achievements can be applied to logic chips or memory chips (DRAM), and the company has been awarded patents by various countries. UMC continuously monitors these patents as market conditions evolve. When violations occur, UMC stands ready pursue patent infringement litigation in order to obtain judgment and remedies to protect the intellectual property rights of the company.

As Bloomberg notes, “the case is part of a broader dispute between the two companies centering on accusations that UMC acted as a conduit for the theft of the Micron’s designs in an attempt to help China grow its domestic chip industry and replace imports that rival oil in total value.”

Micron is pushing back:

$MU pushing back on UMC statement. Says has not been served with the preliminary injunction referred to in the statements issued by UMC.

MU stock had been down more than 4%… https://t.co/EoSg11czMc pic.twitter.com/o6KzYPUOCF

— Sally Shin (@sallyshin) July 3, 2018

But the shares were immediately crushed:

That set off a domino effect, with the The Philadelphia Semiconductor Index diving and breaching its 200-DMA at 1,308:

The Nasdaq fell to session lows as well and the Nasdaq “VIX” spiked:

Long story short, these companies have become pawns in the trade war, a decidedly unfortunate situation as it becomes impossible for folks to appraise the relative merits of an investment thesis absent meaningful insight into what comes next in what is now destined to become a war of attrition between Washington and Beijing.

Additionally, you should note that this is just another example of how things can take an abrupt turn for the worst on a single headline and the longer this dispute drags out, the more of these types of tape bombs the market is likely to see.