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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Qualcomm    QCOM

QUALCOMM

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Delayed Quote. Delayed Nasdaq - 05/24 04:00:00 pm
66.21 USD   -3.00%
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Silicon Valley Will Feel Sting of Export Restrictions Against Huawei

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05/16/2019 | 12:07pm EDT

By Dan Strumpf, Yoko Kubota and Wenxin Fan

The U.S. move to scrutinize exports to Huawei Technologies Co. threatens to disrupt the Chinese technology leader's access to critical suppliers it uses across its businesses, from smartphones to 5G. Any pain will reverberate through Silicon Valley too.

Huawei, the world's leading telecommunications-gear supplier and No. 2 smartphone seller, relies heavily on the U.S. for many advanced components, from chips for handsets and mobile-networks infrastructure to the software that runs its smartphones.

The Shenzhen-based company last year bought about $11 billion in U.S. components of its $70 billion procurement budget, according to the company, but experts said the impact of Washington's move could also extend to Huawei's non-U.S. suppliers who deal in U.S. parts.

Huawei does business with Silicon Valley's biggest names: Qualcomm Inc. and Broadcom Inc. for smartphone chips, Intel Corp. for cellular-tower components, Oracle Corp. for software, as well as an army of smaller technology firms spread across the country for other parts.

The Commerce Department's decision Wednesday to put Huawei and its affiliates on its "entity list" -- on grounds that Huawei had acted contrary to U.S. national security or foreign policy interest -- will force Huawei suppliers to apply for licenses to keep selling to the Chinese firm, complicating the Shenzhen company's ability to procure critical supplies. Huawei has long denied its equipment poses any security risk.

The measure's full impact won't be known until the department publishes its full listing, and it isn't clear how forthcoming licenses will be. Such licenses can take weeks or months for approval, experts said, and even non-U.S. companies might have to apply if they sell goods containing U.S.-sourced products to Huawei. It gives the U.S. wide latitude to disrupt Huawei's supply chain and its ability to sell products and service customer networks.

"The entity list addition is incredibly powerful," said Chris Timura, an attorney specializing in international trade at law firm Gibson Dunn. "This is one large section in a wall that the U.S. government has been building around Huawei for the last couple of years," he said.

Edison Lee, a telecom analyst at investment bank Jefferies, said in a report he doesn't expect the U.S. to grant any such licenses.

In a statement, a Huawei spokesman said the company "will seek remedies immediately" to the U.S. move, calling it "in no one's interest. It will do significant harm to the American companies with which Huawei does business."

Huawei said it has been stockpiling inventories in the past year as an insurance plan against a U.S. supply disruption -- an effort that ramped up as U.S. officials made moves against Huawei and its chief Chinese rival ZTE Corp. That company was brought to its knees last year after a similar Commerce Department action that blacklisted it for three months, banning it from buying U.S. goods after it violated an agreement resolving earlier evasion of U.S. sanctions.

Huawei also has been working to reduce its reliance on U.S. suppliers. It now makes many of its own advanced chips and has developed its own operating system for its smartphones, which currently run on Google's Android system. A Google spokesman didn't immediately comment.

Qualcomm and Broadcom didn't respond to requests for comment. An Oracle spokeswoman declined to comment. An Intel spokesman confirmed the company is a Huawei supplier and declined to comment further.

The Commerce Department's move is the latest by the U.S. against Huawei as the trade fight between the U.S. and China deepens. Talks between the two sides over a fresh trade agreement broke down a few days ago; the export move opens the door to potential retaliation by Beijing, which has been spoken out forcefully against what it calls a U.S. campaign to hobble Huawei.

China's foreign ministry spokesman Lu Kang said Thursday that Beijing opposed unilateral sanctions that "abuse" export controls, and that it would take measures to safeguard the interests of Chinese businesses.

The Commerce Department action was paired with a White House executive order seen as a precursor to a ban on selling Huawei-made products in the U.S. That order will have minimal impact on Huawei because its products are effectively banned in the U.S. anyway, although it could provide a template to allies considering similar blacklists, a U.S. official said recently.

The export review process, however, stands to deal a heavier blow to Huawei and its suppliers.

At an annual gathering honoring Huawei's major suppliers from around the world in Shenzhen last year, the 33 U.S. companies outnumbered China's 25, according to a rundown of 92 vendors published in state media.

Huawei's smaller U.S. suppliers include Lumentum Holdings Inc., in Milpitas, Calif., a producer of optical components for telecom equipment. Lumentum didn't immediately respond to a request for comment.

Others include two makers of chips called field programmable gate arrays, or FPGAs: Xilinx Inc., of San Jose, Calif., and Altera Corp., an Intel unit. FPGAs are crucial components in base stations, which Huawei manufactures and which connect devices like smartphones to wireless networks.

A 2016 report by CCID, an official think tank in Beijing, listed U.S. companies that sold chips worth a total $6 billion to Huawei in 2015, including $560 million from Xilinx. A separate CCID report around the time said Xilinx was a lifeline for Chinese telecom and chip manufacturers. Xilinx provided more than half of the FPGA chips used by Huawei and ZTE, the report said. More recent data wasn't available.

Xilinx didn't immediately respond to a request for comment.

-- Stu Woo contributed to this article.

Write to Dan Strumpf at daniel.strumpf@wsj.com, Yoko Kubota at yoko.kubota@wsj.com and Wenxin Fan at Wenxin.Fan@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BROADCOM INC -1.60% 255.94 Delayed Quote.0.65%
INTEL CORPORATION 0.09% 44.57 Delayed Quote.-5.03%
QUALCOMM -3.00% 66.21 Delayed Quote.16.34%
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Financials ($)
Sales 2019 20 575 M
EBIT 2019 5 148 M
Net income 2019 6 006 M
Debt 2019 6 369 M
Yield 2019 3,80%
P/E ratio 2019 11,15
P/E ratio 2020 15,35
EV / Sales 2019 4,22x
EV / Sales 2020 3,55x
Capitalization 80 491 M
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Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 88,1 $
Spread / Average Target 33%
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Managers
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Steven M. Mollenkopf Chief Executive Officer & Director
Cristiano R. Amon President
Jeffrey William Henderson Non-Executive Chairman
George S. Davis Chief Financial Officer & Executive Vice President
Mary Gendron Chief Information Officer & Senior Vice President
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