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Understanding the Impact of US Tariffs on Qualcomm

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US tariffs and telecommunications products

The second round of the US tariffs on $200 billion of Chinese (FXI) imports includes connected devices. Under the tariff list, the HTS (Harmonized Tariff Schedule) product category 8517.62.00 describes these devices as “Machines for the reception, conversion, and transmission or regeneration of voice, images or other data, including switching and routing apparatus.”

The above HTS category includes modems, Wi-Fi routers, gateways, cell tower radios, Bluetooth-enabled devices, and any component used to connect to the Internet and mobile networks. These are key components of the IoT ecosystem enabled by 5G (fifth-generation) infrastructure. Tariffs on these components would increase the prices for data center networking equipment and home and office networks.

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Adverse impact on US companies and consumers 

According to a study by the CTA (Consumer Technology Association), 10.0%–25.0% tariffs on connected devices would increase the price of these products by 8.5%–22% and reduce their consumption by 6%–12%.

This would encourage wireless telecommunications device makers to find alternatives for these communications chips in countries not affected by tariffs such as Korea, the Philippines, and Taiwan. This alternate sourcing would increase the component cost by 3.2% and 6.2% for 10% and 25% tariffs, respectively. This cost increase is still lower than the increase due to the tariffs.

Impact on Qualcomm

The alternate sourcing of communication chips would adversely impact US-based Qualcomm (QCOM), Intel (INTC), and Broadcom (AVGO), which supply communications chips. Chinese handset makers and embedded device makers would reduce their exposure to Qualcomm and instead source communication chips from domestic suppliers.

This would negatively impact US companies’ market share in China. Qualcomm earns more than 60% of its revenues from China. The US tariffs would give a boost to Qualcomm’s Chinese rivals.

The tariffs on communication components would significantly impact the deployment of 5G infrastructure in the United States. We’ll look into this topic next.

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