Stocks in processing-chip companies retreated after the Trump administration blacklisted Huawei last week, reflecting fears that they’ll be hard-hit in the brewing “tech cold war” between the US and China.
But one analyst said that, if anything, the China situation is merely kicking those chipmakers while they’re already down.
“You have a double whammy,” Dan Morgan, a vice president at Synovus Trust Co., a wealth management company based in Georgia, told Business Insider. “This blacklist is a black cloud in the chip sector. But I’m not sure this blacklist is as devastating as the reaction is. To me, the biggest story is continued pressure on the sector.”
Huawei makes a host of telecommunications equipment and consumer-electronics products, including mobile phones. The tech giant buys components from leading chipmakers, including Intel and Qualcomm, who have cut off sales to Huawei in the wake of the ban, according to Bloomberg. Trade tensions could also hurt other US chipmakers that sell to companies based in China.
Major semiconductor stocks slipped after the blacklist was announced. The Philadelphia Semiconductor Index, the most well-known barometer of chip-investing sentiment, was off about 5% on Tuesday from its Friday close.
“US Chipmakers and other companies are under pressure in part because they will lose revenue when they cut off Huawei as a customer,” Morgan said in a note. “Huawei depends on many U.S. companies for components woven into the 5G equipment it makes.”
But the Huawei ban’s effect will probably not be significant, he added. Only 2.6% of Qualcomm sales come from Huawei, while Intel gets only 1% of its revenue from the Chinese tech giant, according to Synovus’ research.
Besides, the global supply chain used by the US tech industry has also become so complex that “pinpointing the financial strain on chipmakers of a U.S.-China trade war” is difficult, he said.
“Most of the effects will be indirect, based on our checks, and any direct tariff impact on chipmakers will likely be small,” Morgan said.
What’s more significant, he said, is the broader market uncertainty faced by chipmakers. This was underscored by the earnings results reported by major chip companies, including Intel and Nvidia, both which cited a weaker-than-expected data-center market. Intel and Nvidia make chips that power data centers and cloud-computing platforms.
An expected build-out in those markets stalled, which hit chip sales, and the chip giants have said it’s unclear how long the pause will last.
“That’s more devastating and it’s an unknown,” Morgan said. While the blacklist is a concern, he added, “The chip sector has bigger problems.”
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