Chip Stocks Plunge Amid Import Tariffs And Huawei Trade Ban

Semiconductor Industry
A close-up of a microcontroller is pictured at an exhibition (Photo: Reuters / Andreas Gebert)

The recent inclusion of Huawei in the United States' trade blacklist will understandably cause a lot of negative effects on the firms within the technology sectors. Investors are of course well aware of this, which is why Wall Street has now seen a massive amount of sell-off of chip-related stocks.

Earlier in the week, investors scrambled to get rid of chip stocks following reports of the trade ban imposed by United States President Donald Trump. At the administration's order, the US Commerce Department including the Chinese conglomerate in its trade blacklist. This effectively halted all transactions between Huawei and its US business partners.

The shipment and delivery of US-made components and software were completed stopped, putting in danger Huawei's multi-billion dollar business. Companies such as Broadcom, Intel, and Qualcomm immediately stopped doing business with Huawei following the order. After being recommended to do so, Google also suspended its business with Huawei, threatening to end its Android license. Fortunately, the firm had decided to give Huawei a 90-day extension on its license.

Losing Huawei as a customer hit US chip suppliers hard as the Chinese firm is currently the world's largest telecom equipment provider. On average, Huawei spends around $20 billion in chip purchases from US suppliers each year.

Following the trade ban, Qualcomm shares tumbled by as much as 6 percent.  Xilinx shares saw a drop of 3.5 percent following the news. The VanEck Vectors Semiconductor ETF dropped by 4 percent at the start of the week's trading, around 15 percent below its intraday high.

According to analysts at Evercore, the overall impact of the trade ban will be "tens of billions of dollars." The ban would also significantly slow down investments in the semiconductor industry, which some consider a national security issue.

The country's future 5G infrastructure is also apparently at risk as the US scrambles to find other equipment suppliers with the same capabilities as Huawei's products. A lot of firms are heavily relying on the country's 5G infrastructure growth. Companies such as Skyworks Solutions, Broadcom, Qualcomm, Xilinx, and Qorvo are among those companies that will be affected by the country's slowed 5G development. Meanwhile, companies such as Nvidia and AMD may have a difficult time developing their respective high-end data centers and computing capabilities given the trade ban.

The recent trade ban imposed on Huawei comes at the heels of the Trump administration's recent tariff hike on more than $200 billion worth of Chinese goods. This already had a huge impact on the semiconductor sector, which is now further spiraling down due to the recent trade ban. China has announced that it would also be imposing its own tariff hikes on US goods, a move that may plunge markets further down. 

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