Trump imposes a ban on Huawei

Semiconductor stocks fell once again as President Trump played another card in the United States’ trade war with China. Trump declared a national emergency, stating that American technology was under threat. He issued an executive order that’s expected to ban US firms from doing business with Chinese telecommunications company Huawei.

Trump’s executive order allows the government to block the sale or transfer of information or communications technology that could risk national security. The US Department of Commerce added Huawei and its 70 affiliates to the BIS (Bureau of Industry and Security) Entity List, which means US companies will have to get a license from the Bureau to do business with Huawei.

Semiconductor Stocks Fall as Trump Imposes Ban on Huawei

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What the Huawei ban means for the US semiconductor industry

Huawei is a leading player in 5G technology and a major customer of US chip companies with exposure to the communications market. The company has been relatively absent from the United States market, earning just 6.6% of its revenue from the country in 2018.

However, Huawei depends heavily on US firms Intel, Qualcomm (QCOM), and Xilinx (XLNX) for components used in smartphones, laptops, and network infrastructure. Its dependency is visible from its 2018 core suppliers’ list, which shows that 33 of the 92 suppliers were American.

Semiconductor stocks fall on Huawei ban

Responding to the ban, Huawei stated that these restrictions will limit 5G deployment in the United States and force the country to adopt expensive and inferior alternatives. This statement from Huawei sent the Xinhua China 25 Index (FXI) up 1% and the VanEck Vectors Semiconductor ETF (SMH) down 1.9% in the early trading on May 16.

Nine of the top ten decliners of the tech-heavy NASDAQ Index were semiconductor companies. The biggest declines were reported by Xilinx, Skyworks (SWKS), and Qualcomm, which fell between 3.35% and 4.4% in the first half of May 16’s trading session. These three companies earn 25%, 83%, and 64% of their revenue from China, and Xilinx has been banking on 5G for growth in 2019. The Huawei ban should significantly affect the three companies’ 2019 revenue.

The International Data Corporation forecasts global semiconductor revenue falling 7.2% year-over-year in 2019, driven by slowing smartphone sales and weak demand in China.

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