Goldman is still bullish on Micron Technology, Inc.'s (MU) next couple of quarters, but the firm sees more trouble ahead for longer-term investors, especially from China.
"Key risks to our view both to the upside and downside relate to DRAM and NAND supply/demand, server/PC/handset unit growth, tariffs, the UMC lawsuit in China, market share, margins, and the potential entry of China into the memory industry," wrote Goldman Sachs analyst Mark Delaney, in a research note on Wednesday.
The company's shared dropped 5.7% as of 10:55 a.m. in New York.
While Micron's existing operations in China are limited, the uncertainty of the global trade standoff, Micron's ability to cater to "higher value markets" and how fast Chinese competitors emerge are concerning investors.
Earlier this month, Baird's Tristan Gerra also lowered its price target from $100 to $75 NAND oversupply and DRAM price decline in CY19.
Still, Goldman said they anticipate upcoming quarters to be above FactSet consensus. Micron last reported results on June 20, posting $3.15 EPS for the quarter and beating analysts' consensus estimates of $3.13.
"Micron's results should benefit from 3QCY18 DRAM price increases that were already set with contracts earlier in the year," Delaney noted.
Here is what Goldman is worried about in the longer term, in addition to declining margins.
Micron's operations in China only include assembly and test work, as it makes its chips in Singapore, Japan and Taiwan, according to Reuters. In fact, China ruled to have a preliminary junction against Micron preventing its locally based subsidiaries from manufacturing and distribution in the country.
But Micron has faced the scrutiny of Chinese lawmakers for some time.
If the trade war and the role of politics escalates, China may retaliate further against high-profile companies like Apple (AAPL) and Micron.
Micron, along with United Microelectonics Corp (UMC) , was fighting in Chinese courts, disputing intellectual property and patent infringement rights.
There are also antitrust concerns.
"We can't really comment much on it, other than the authorities in China had visited our offices and had on May 31, I believe it was, and had requested certain information," Micron CEO Sanjay Mehrotra told analysts on the last earnings call. "And of course we are cooperating with that. And I would just like to point out that we absolutely do remain focused on -- disciplined and operating with highest integrity methods."
The lack of clarity and outlook for the Chinese markets adds to a medley of adverse factors for Micron.