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The European chip sector was under pressure on Tuesday when the cold wind of fracturing relations between US and China blew its way.
The sector has benefited from the fruits of a global tech rally driven by the need for gadgets and computers to keep individuals and businesses working amid the pandemic.
But some investors may have to brace for influence after the Department of Commerce ruled that any company that wants to sell chips that use U.S. technology to China telecom group Huawei will now need a special license.
The latest move expands the U.S. administration’s bid to crack down on the Chinese company by making even the widest available of so-called off-the-shelf chips made by foreign companies.
President Donald Trump reiterated in an interview on Monday, in which he reiterated accusations that “they are spying on us”, referring to Huawei, which has denied these allegations several times. That’s like a Huawei executive said this month that the company ran low on processor chips needed to make smartphones
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For European chip companies, the news is not good, warned JP Morgan Cazenove analyst Sandeep Deshpande in a note to clients. “The new restrictions indicated in news reports are negative for our European semi-coverage. On the front of the device, STMicro,
Infineon,
ams and Dialog ship semiconductors to Huawei, ”said the analyst. “Huawei is probably a 6% + customer for STMicro.”
All but shares of Infineon were down in European trading on Tuesday, with losses of just 1% for STMicro and Dialog and 0.6% for ams. Infineon posted the trend with a gain of 0.2%. The Stoxx EuropeTM Semiconductors Index has gained 22.8% so far in 2020, just past a 20% increase for the US PHLX Semiconductor Index.
The new restrictions would potentially cover all of STMicro’s exposure to Huawei, proving “near-term wind growth” for the stock market, Deshpande said.
Ams has about 10% exposure to Huawei, and although the company’s products do not use American technology, if Huawei can not ship phones, it will have an impact on the Austrian designer and manufacturer of optical sensors, the analyst said.
But the biggest danger of all may come through the exposure that many European chip companies have to iPhone maker Apple.
“A major risk for European vendors such as STMicro, AMS and Dialog is that the growing U.S. restrictions on Huawei will result in Chinese restrictions on Apple, which is a major customer for these companies,” Deshpande said.
While China on Tuesday reported the latest moves as damaging to global trade relations and promises to protect companies like Huawei, so far there has been no sign of revenge. But along the way, things could get uglier, some analysts worry.
Deutsche Bank‘s
global technology strategist, Apjit Walia, has estimated that a full-blown cold war in tech between the US and China could cost the global information and technology sector in just five years $ 3.5 trillion.
Write to Barbara Kollmeyer at [email protected]
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