Daily Management Review

Stocks Of Huawei’s US Suppliers Tumble After Chinese Firm Put On US Blacklist


Stocks Of Huawei’s US Suppliers Tumble After Chinese Firm Put On US Blacklist
The issuing the executive order by United States President Donald Trump that banned the American telecom companies from using equipment and technology for foreign that are deemed to be threat to the national security, the share prices of the suppliers of Chinese tech giant Huawei stumbled drastically.
While Huawei has not been named in the executive order, the Department of Commerce said soon after the issuance of the executive order that it would add Huawei and its 70 affiliates in the ‘Entity List’ which identifies those foreign companies with whom American companies cannot do business.
The new rule mandates that American companies would have to get a license for busing business s- purchasing goods or exchanging technology, with a foreign entity that is deemed to be a threat to the US national security and is against US foreign policy. This means that the American suppliers of Huawei would have to also apply and obtain those such licenses before doing business with the Chinese company.
There are more than 30 U.S. companies which are considered to be the core suppliers by Huawei which supply a very large range of components for the smartphones and telecom networking equipment manufactured by the Chinese tech company.
Many of those supplier companies that are listed publicly saw their shares tumble by the close of U.S. trade on Thursday. For example, there was a 4 per cent drop in Qualcomm stocks; an almost 3 per cent drop in the shares of Micron and 7 and 6 per cent drop in shares of semiconductor firms Qorvo and Skyworks.
There have been no comments from any of the supplier companies according to the US media.
Huawei has said that American companies could by meaningfully hurt by the move of the US government. “This decision is in no one’s interest. It will do significant economic harm to the American companies with which Huawei does business, affect tens of thousands of American jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain,” a Huawei spokesperson said on Friday.
“Huawei will seek remedies immediately and find a resolution to this matter. We will also proactively endeavor to mitigate the impacts of this incident,” the spokesperson added.
Apparently, analysts say, that anticipating such a situation, preparations had been taken by Huawei. According to reports, about six months ago, suppliers of the crucial components were informed by the world’s largest telecom equipment maker that it wanted to get ready for any eventuality of the US-China trade war and thereby build up an inventory of one year, reported Nikkei Asian Review on Friday.
Another measure taken by Huawei over the last few years is to invest in construction of its own chip technology for consumer products, specifically for its smartphone processors and 5G chips, which is a strategy for reducing its dependency on US suppliers.
In a letter to the employees, the decision of the US administration to put Huawei on the Entity List was described as “insane” byHe Tingbo, president of Huawei chip division Hi-Silicon.
 “While it could hit Huawei quite a bit, it will also hit these companies as Huawei has grown big enough to be substantial portion of these companies’ revenues,” Neil Shah, a research director at Counterpoint Research told CNBC.
“Huawei has ... started to stock enough components for next 8-12 months so ideally should be little affected in the near term. Huawei would be expecting to get this resolved by then but there will always be a hanging sword,” Shah added.