Will U.S.-China Tech Squabbles Threaten Tech Stocks?

Several mega-cap technology stocks and suppliers to Apple (AAPL) tumbled last week after the Chinese government banned iPhones from government-backed agencies and state companies, thereby threatening iPhone sales.  Also, suppliers to Huawei Technologies came under pressure last week, with some U.S. lawmakers calling for a halt to all U.S. exports to the company.

Apple lost more than -5% last week on news that the Chinese government plans to expand a ban on using iPhones in sensitive departments to government-backed agencies and state companies. The action by China threatens to erode Apple’s position in China, a market where Apple receives about 20% of its yearly revenue.  However, most analysts believe China is unlikely to completely ban iPhones as the country still benefits greatly from Apple’s presence.

Shares of Qualcomm (QCOM), the world’s biggest supplier of smartphone chips, slumped more than -7% last week on the China news.  A widening ban in China on iPhones undercut the stock since Qualcomm is one of the iPhone’s biggest vendors.  Also, news that U.S. lawmakers are scrutinizing suppliers to Huawei Technologies weighed on Qualcomm as it provides Huawei with older generation 4G chips.  However, Qualcomm received a boost today after Apple extended its contract with the company to provide it with modem semiconductor chips for three more years. 

Other global chipmakers are also under pressure due to the ongoing U.S.-China tech squabbles.  SK Hynix, a key supplier to both Apple and Nvidia (NVDA), dropped more than -6% last week on the revelation that some of its products were found inside Huawei Technologies’ Mate 60 Pro smartphone.  Billionfold Asset Management said the slump in SK Hynix reflects “the fear of potential U.S. sanctions” against the company after some of its chips were found in the Huawei smartphone.  SK Hynix gets about a third of its revenue from China.

Despite U.S. policy efforts aimed at ending reliance on the strategic semiconductor industry from foreign companies, the U.S. still gets the bulk of its chips from foreign suppliers. Even after increased import and export curbs, China still accounted for 17% of total chip imports to the U.S. in 2022, down from 25% from 2018, according to Bloomberg Intelligence.  The majority of mega-cap chip stocks in the U.S. have registered an average increase of almost 50% in the weight of China among their suppliers over the past four years.  China’s export restrictions are a key risk to the U.S. semiconductor industry, even more than U.S. export curbs because major U.S. chip manufacturers have higher exposure to China on the supply side.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.