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Micron shares drop after JP Morgan slashes price target on the chipmaker due to Huawei ban

Key Points
  • J.P. Morgan cuts its year-end price target for Micron to $50 from $64 but maintains its overweight rating.
  • Because Huawei accounted for 13% of Micron's sales in the first half of 2019, J.P. Morgan expects the ban would weigh on the chipmaker for the rest of the year.
  • "Replacing bits sold to Huawei may take some time to normalize on substitution effects," says analyst Harlan Sur.
The headquarters building of Micron Technology Inc. stands in Boise, Idaho, U.S.
Matthew Staver | Bloomberg | Getty Images

Shares of Micron Technology fell Friday after J.P. Morgan lowered its outlook for the chipmaker due to the U.S. restrictions on Chinese telecom giant Huawei, a big customer of Micron.

J.P. Morgan cut its year-end price target for Micron to $50 from $64 on Friday but maintained its overweight rating. With Huawei accounting for 13% of Micron's sales in the first half of 2019, J.P. Morgan expects the ban would weigh on the chipmaker for the rest of the year.

"Replacing bits sold to Huawei may take some time to normalize on substitution effects," Harlan Sur, J.P. Morgan's semiconductor analyst, said in a note Friday. "The shape of the recovery may be negatively impacted by trade tensions with potential demand destruction in consumer segments."

Shares of Micron fell 2.5% on Friday. The stock has lost nearly 20% in the second quarter amid the escalated trade war.

The Trump administration blacklisted Huawei last month amid the escalated trade war between the U.S. and China, effectively halting its ability to purchase American-made chips and forcing U.S. companies to cut ties with the Chinese giant.

J.P. Morgan lowered 2019 earnings estimates for Micron to $5.64 per share from $6.19. The Wall Street consensus is $6.22 per share.

Micron is set to release its earnings for its fiscal third quarter on Tuesday.

"Though we meaningfully lower our forward estimates for Micron, we believe the risk reward profile is net favorable for Micron as the stock is trading near book value. Thus, barring a global recession or outright component export ban to China, we expect an improvement in fundamentals following the August quarter trough," Sur said.