Daily Management Review

US Technology Sector Is In Turmoil As A Result Of China's Expanding iPhone Restrictions


US Technology Sector Is In Turmoil As A Result Of China's Expanding iPhone Restrictions
Beijing's expanding restrictions on iPhone usage by government employees left American lawmakers worried and stoked worries that American tech companies with significant exposure to China would suffer from escalating tensions between the two nations.
Following reports that Beijing had recently ordered employees at some central government departments to stop using their Apple phones at work, Apple experienced its worst two-day percentage decrease since November, down 2.9% at the close of trading on Thursday.
The limits, according to several Wall Street experts, demonstrate that even a business with positive ties to the Chinese government and a sizable presence in the second-largest economy in the world is vulnerable to escalating tensions between the two countries.
As Beijing seeks to lessen its reliance on American technology and Washington works to limit China's access to vital technologies, particularly cutting-edge semiconductor technology, tensions between the two countries have gotten worse recently.
China's Huawei unveiled its new Mate 60 Pro smartphone last week. The device is powered by a cutting-edge CPU produced by Chinese contract chipmaker SMIC, and it appears to be a breakthrough for the two companies that have been subject to U.S. sanctions.
Late on Thursday, the U.S. Commerce Department announced that it was trying to learn more "on the character and composition" of the chip that might be in violation of trade regulations.
"The restrictions in place since 2019 have knocked Huawei down and forced it to reinvent itself -- at a substantial cost to the (Chinese) government," the department added. "We are continually working to assess and, when appropriate, update our controls based on the dynamic threat environment and we will not hesitate to take appropriate action to protect U.S. national security."
On Air Force One, White House National Security Advisor Jake Sullivan told reporters that the United States government is attempting to learn more about the Huawei chip.
"There’s a number of different methods to try to sort of come to an understanding of what exactly it is that we’re dealing with here," Sullivan said. "I can’t give you an exact number of days but this is not going to be months down the road. We’re going to want to look at this carefully, consult with our partners, get a clearer sense of what we’re looking at, and then we’ll make decisions accordingly."
The U.S. sanctions hurt Huawei's operations and gave Apple an opportunity to compete with the Chinese market leader by denying Huawei access to chipmaking equipment necessary for creating the most cutting-edge handset models.
"If Huawei has the capability to supply and scale its home-grown Kirin 9000S (chips), we see the Mate series phone as an opportunity for Huawei to increase its shipments and regain its market share," analysts at BofA Global Research said.
One of the American businesses with the biggest footprint in China, Apple supplier Qualcomm, saw losses among the biggest tech companies rise to 7.2%.
The Biden administration has been under pressure to be even more harsh with Beijing as a result of lawmakers from both major U.S. parties speaking out about vulnerabilities to national security they believe China's goods to be posing.
According to American Representative Mike Gallagher, the head of the House panel on China, the expanded prohibition is not surprising and demonstrates China's efforts to restrict a Western company's market access to the country.
"This is textbook Chinese Communist Party behavior - promote PRC (People's Republic of China) national champions in telecommunications, and slowly squeeze Western companies' market access," Gallagher, a Republican, told Reuters.
Democratic senator and head of the Senate Intelligence Committee Mark Warner said, "As the Chinese economy stalls, we can potentially anticipate more aggressive moves against foreign businesses," and he expressed similar worries.
China has restricted shipments from well-known American companies like planemaker Boeing and memory chip manufacturer Micron.
Texas Instruments, Broadcom, and Skyworks Solutions were among the other vendors who had declines ranging from 1.8% to 7.4%. The three major U.S. stock indexes were affected by the decline in the technology sector, especially the heavily weighted Nasdaq Composite, which finished the day down 0.9%.
A number of Apple suppliers saw their shares drop on Monday in Asia, with TSMC and Tokyo Electron seeing declines of 0.7% and 4%, respectively.
"This announcement seems to have just refocused investors that the relationship between the U.S. and China is a big risk to current equity prices, particularly in technology," said Rick Meckler, partner at Cherry Lane Investments.
In an otherwise difficult moment for iPhone sales, China has been a bright spot for Apple.
"China is a crucial market for Apple, not just because it's a super-important manufacturing hub, but because the country is an increasingly important source of revenues," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
China has been a bright spot for Apple in a period when iPhone sales are generally struggling.
"Already rivals are closing the gap in high-end smartphone sales, and if the situation were to escalate this could potentially allow competitors to have a greater chance of stealing Apple's crown," Streeter said.
However, with an event next week where it is anticipated to introduce its iPhone 15 line-up as well as new smartwatches, Apple may experience an increase in demand.