The US tariffs to impact Micron’s margins
The tariffs that the United States imposed on Chinese (FXI) goods are expected to impact Micron’s margins in fiscal 2019, as it operates in a commodity market in which memory prices are falling. Because Micron can’t pass the tariff costs to its customers, it would have to bear that cost. Higher costs and reduced ASPs (average selling prices) would negatively impact Micron’s gross margins.
Micron’s strategy to tackle US tariffs
The imposition of a tariff program isn’t under Micron’s (MU) control. So, the only way it can mitigate the impact of these tariffs is by relocating its assembly operations outside China. However, relocating an established plant is an expensive proposition. In such a scenario, Micron CEO Sanjay Mehrotra told Reuters that the company is leveraging its global supply chain to import products that aren’t made in China.
Mehrotra didn’t specify where Micron might shift its assembly work. However, it could move it to countries where it has existing assembly operations such as Taiwan. However, the company is unlikely to relocate these operations to the United States, as it doesn’t have existing assembly operations in the country.
Micron’s operations in the US
In the United States, Micron is primarily involved in manufacturing and design work. It has a manufacturing plant in Virginia that focuses on long-lifecycle products such as networking, industrial, and automotive memory. In September, the company announced plans to invest $3.0 billion to expand the cleanroom and manufacturing space in this plant.
Micron also has a plant in Lehi, Utah, which was built in collaboration with Intel (INTC) to produce 3D XPoint-based memory products. Products from these US plants remain unaffected by tariffs.
Next, we’ll look at the other significant headwind that’s impacting Micron’s guidance—the CPU (central processing unit) shortage.
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