Shares of Micron technology (NASDAQ:MU) were on the rise today, especially compared to the semiconductor sector as a whole. Micron shares rose as much as 5.2% before closing in on a 2.8% gain as of 11:53 a.m. ET. That compared favorably with a decline of 0.4% for the iShares Semiconductor ETF at that moment.
Micron’s outperformance can likely be attributed to the surprising political news from South Korea this morning.
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Late Tuesday evening in South Korea, which is early morning in the US, South Korean President Yoon Suk Yeol declared martial law. The president, the leader of the Conservative Party, accused the opposition in the country, which has a majority in parliament, of sympathizing with North Korea. But the measure appears to be a response to recent opposition moves to oust top prosecutors and reject the president’s budget proposal.
While parliament voted strongly against the martial law measure, over which it apparently has power, the move fueled fears of political instability in the country. South Korean shares tumbled as much as 7% before recovering to a loss of 2.6%.
Why is this positive for Micron? Because it operates in a fundamental oligopoly with only two other companies – Samsung and SK Hynix – both of which are headquartered in South Korea.
Micron is the smallest of the three companies, but has made significant technological advances in recent years, especially in the all-important high-bandwidth memory (HBM) market. SK Hynix had an early lead in that product area and Samsung has struggled with returns on HBM lately. However, Micron is catching up quickly and now claims to have the leading HBM product, with 20% lower power consumption and 50% greater capacity than its competitors’ products.
For semiconductor investors, geopolitics cannot be ignored, for better or for worse. Despite efforts by the US government to build more manufacturing in the US, most chip production still takes place in East Asia and will be affected by geopolitical developments there. Today that was positive for this American company. However, if something were to happen to Japan or Taiwan, where Micron has a large manufacturing base, there would be an opposite reaction.
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