Qualcomm Has Lots to Lose in a U.S.-China Trade War

As President Donald Trump escalated the trade war with China with tariffs imposed on Chinese goods, investors were betting on which companies were most at risk. Some have turned to semiconductor producers, such as Qualcomm Inc. (QCOM), a mobile chipmaker that does much of its business in China.

Qualcomm’s products are essential infrastructure components of 5G technology, the future of the data economy, communications networks, data security, and technologies such as driverless cars and intelligence. artificial. Any action against China in an escalating trade war could have lasting effects on companies that depend on China’s high-tech industry for much of their business.

Key points to remember:

  • Semiconductor stocks fell in May 2020 after the Trump administration blocked chip shipments to Huawei.
  • Qualcomm fell more than 5% over the same period.
  • The decline reflects the effect that the trade war with China is having on stocks heavily dependent on the Chinese market.

Understanding the effect of the trade war with China

In May 2020, the Trump administration blocked shipments of semiconductors from U.S. chipmakers to Huawei Technologies Co., Ltd., one of China’s leading telecommunications and consumer electronics companies. The move was part of the U.S.-China trade war, but the result was that computer hardware and semiconductor stocks plummeted in the United States.

According to CNBC, Qualcomm stock fell more than 5% while Intel stock fell 1.4% in one day.Huawei relies on these imported parts and software for its smartphones and telecommunications infrastructure. To make matters worse, Qualcomm was also in a patent licensing dispute with Huawei.

Before the Trump administration took this punitive action against China, in March 2018, the administration blocked Broadcom from acquiring Qualcomm, as Broadcom was based in Singapore.

Huawei relies on American companies for networking equipment and data center components. Any ban affects all Huawei products, including high-end smartphones, mobile infrastructure, data centers and cloud services. The ban would also affect Huawei’s global customers, especially European carriers.

China’s retaliation could target chip giants like Qualcomm, Broadcom and Apple, which rely on chipmakers to make iPhones. The last time Qualcomm got caught up in the US-China trade war was when it pulled out of the acquisition of NXP Semiconductors (NXPI).

Qualcomm’s interest in China

The majority of Qualcomm’s revenue comes from China. According to Statista, in fiscal year 2020, Qualcomm earned $14,001 million in the Chinese market, compared to $1,129 in the US market.

While the Trump administration has done little to bolster confidence in Qualcomm’s strong presence in the Chinese market, the incoming Joe Biden administration may not materially ease tensions with China. Chinese telecommunications giant Huawei reacted to the US blacklisting last year by focusing more on its home market where it is gaining market share.

Qualcomm is diversifying and, according to Investor Business Daily, the company has partnered with China’s Tencent (Czech Republic) on mobile gaming devices.

The global chip industry experienced a downturn in 2018, then fell 12% in 2019. There were signs of an industry recovery in early 2020, followed by a sell-off due to the coronavirus outbreak. However, despite the pandemic, the semiconductor industry is expected to grow again. The Semiconductor Industry Association cited the World Semiconductor Trade Statistics, which predicted chip sales would grow 5.1% to $433 billion in 2020 and rise to 8.4% in 2021 with the distribution of 5G wireless networks .

Qualcomm and the future

For Qualcomm, there is a huge opportunity with 5G smartphones and 5G laptops, although the Sino-US tensions and the coronavirus shock to the global economy represent strong headwinds. However, with the new Biden administration, a trade war with China that would significantly harm the US semiconductor industry is unlikely.