As President Donald Trump escalated the trade conflict with China by imposing tariffs on Chinese goods, investors were betting on which firms were most vulnerable. Some switched their attention to semiconductor companies, such as Qualcomm Inc. (QCOM), a mobile chip firm that conducts the majority of its business in China.
Qualcomm’s products are critical infrastructural components of 5G technology, the data economy’s future, communication networks, data security, and technologies such as autonomous vehicles and artificial intelligence. Any action taken against China in an intensifying trade war might have long-term consequences for corporations that depend heavily on China’s high technology sector.
- Semiconductor stocks slumped in May 2020 as a result of the Trump administration’s decision to halt chip supplies to Huawei.
- Qualcomm lost more than 5% within the same time period.
- The dip underscores the impact of the trade conflict with China on stocks that rely largely on the Chinese market.
Understanding the Effect of the Trade War with China
The Trump administration restricted semiconductor exports from American chipmakers to Huawei Technologies Co., Ltd., a significant Chinese telecoms and consumer electronics giant, in May 2020. This action was part of the United States’ trade war with China, but it resulted in a drop in computer hardware and semiconductor stocks in the United States.
According to CNBC, Qualcomm stock plunged more than 5% in one day, while Intel shares dipped 1.4%. Huawei’s handsets and communications infrastructure rely on these foreign hardware and software. To make things worse, Qualcomm was also at odds with Huawei over intellectual licensing.
Prior to taking this retaliatory step against China, the Trump administration banned Broadcom from purchasing Qualcomm in March 2018, since Broadcom was located in Singapore.
Huawei purchases networking equipment and data center components from American companies. All Huawei goods, including high-end smartphones, mobile infrastructure, data centers, and cloud services, are affected by any ban. The embargo would also have an impact on Huawei’s worldwide clients, particularly European operators.
China’s retaliation might target semiconductor titans such as Qualcomm, Broadcom, and Apple, who rely on chip producers to manufacture iPhones. The last time Qualcomm was caught up in a trade battle with China, it backed out of its purchase of NXP Semiconductors (NXPI).
Qualcomm’s Interest in China
China accounts for the vast bulk of Qualcomm’s income. According to Statista, Qualcomm earned $14,001 million from the Chinese market in fiscal year 2020, compared to $1,129 in the US market.
While the Trump administration did nothing to instill confidence in Qualcomm’s strong market position in China, the future Joe Biden government may do little to alleviate tensions with China. Last year, Chinese telecom giant Huawei reacted to the United States’ blacklisting by concentrating more on its domestic market, where it is gaining market dominance.
Qualcomm is expanding, and according to Investor Business Daily, the corporation has collaborated on mobile gaming devices with China’s Tencent (TCEHY).
The worldwide semiconductor sector had a dip in 2018 and subsequently dropped 12% in 2019. Early in 2020, there were hints of an industrial upturn, followed by a sell-off owing to the Coronavirus pandemic. Despite the epidemic, the semiconductor sector is anticipated to recover. The Semiconductor Industry Association cited World Semiconductor Trade Statistics, which predicted that chip sales would jump 5.1% to $433 billion in 2020 and 8.4% in 2021 when 5G wireless networks become available.
Qualcomm and the Future
Qualcomm sees a large potential in 5G smartphones and 5G laptops, despite the fact that China-US tensions and the coronavirus shock to the global economy are significant barriers. However, with the new Biden administration in place, a trade war with China that would be devastating to the US semiconductor sector seems improbable.
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