Micron Technology, Inc. (NasdaqGS: MU) jumped Thursday, but it was not enough to keep the broader semiconductor sector-related exchange traded funds afloat amid a broader down market.
On Thursday, the iShares PHLX Semiconductor ETF (NasdaqGS: SOXX) fell 3.5%, Invesco PHLX Semiconductor ETF (SOXQ) dropped 3.5%, and VanEck Vectors Semiconductor ETF (SMH) declined 3.3%.
Meanwhile, Micron shares were 2.6% higher. MU makes up 4.9% of SMH’s underlying portfolio, 4.3% of SOXQ, and 4.3% of SOXX.
Micron shares bucked the broader market trends on news of supply disruption for flash-memory chip production at two factories in Japan run by Western Digital and its flash-memory point venture partner Kioxia, Barron’s reports.
Western Digital said that “contamination of certain material used in its manufacturing processes” affects plants in Yokkaichi and Kitakami, Japan. Consequently, the company warned that flash chips supply could be reduced by at least 6.5 exabytes.
Citi analyst Jim Suva explained in a research note that 6.5 exabytes represent makes up 25% of Western’s flash production for the quarter, projecting that the issue could reduce Western Digital’s March quarter sales and profits by 14%. Street estimates of overall lost production could fall between 14 and 16 exabytes or almost 10% of expected global flash-memory production for the March quarter.
“While disruptions to the Western Digital and Kioxia Nand Flash operations can certainly be viewed as a negative, historically disruptions to flash production (earthquakes, power outages, etc.) have resulted in positive impacts on Nand flash pricing, and consequentially share prices,” Wells Fargo analyst Aaron Rakers said in a note.
This shortage would raise prices on current supply and help Micron’s near-term profitability, even though NAND flash production only makes up 24% of the company’s total revenue last quarter, The Motley Fool reports.
“Flash memory prices will rise for sure, further adding fuel to the recent component price hike trend stemming from supply shortages,” Ace Research Institute analyst Hideki Yasuda told Bloomberg.
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