Tariffs impact global semiconductor supply chain
China (FXI) is the global manufacturing hub of semiconductor and consumer electronics. The US tariffs would make goods manufactured in China expensive for US companies, encouraging them to move their operations or supply chains away from China.
Taiwanese server ODMs
According to DRAMeXchange, 40% of the global server demand comes from North America as big cloud companies like Google and Amazon order in bulk. Taiwanese (EWT) server ODMs (original design manufacturers) like Quanta, Wistron, IEC, and MiTAC have their manufacturing facilities in China.
The second round of US tariffs would impose a 10% tariff on Chinese products like servers, server modules, network switches, and motherboards. The tariff rate could increase to 25% on January 1, 2019, if the trade war intensifies.
In the light of these tariffs, Taiwanese server ODMs are considering relocating their manufacturing facilities back to their home country. However, shifting an established supply chain is expensive, as they might lose out on the cheap labor of China.
However, Taiwanese chip designers dealing in consumer electronics are unlikely to move their production away from China, as almost all consumer electronics are made in China. More than 90% of smartphones and notebooks are assembled in China.
Impact on M&A deals
According to CNBC, CFRA head of equity research Scott Kessler stated that the US-China trade war would impact the semiconductor industry’s M&As (mergers and acquisitions) involving the two countries. For instance, the US authorities rejected China-based Tsinghua Unigroup’s acquisition of Micron (MU). Chinese regulators delayed the approval of the Qualcomm (QCOM)-NXP Semiconductors (NXPI) deal, which forced the former to withdraw from the bid.
Next, we’ll see how semiconductor investors are reacting to the US-China trade war.
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