【Morningstar】Asian Semiconductor and Tech Companies Get Trumped

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Tightening Huawei ban is a short-term gut kick, fading to a midterm bruise.

New U.S. Rule Restricts Huawei"s Access to Foreign Chips Based on U.S. Technology, Which May Have Significant Impact on the Tech Industry in the Worst Case

The U.S. Commerce Department issued new rules prohibiting non-U.S. companies from selling any chips using U.S. technology to Huawei without a special license. The new rule is applied for various layers on the semiconductor manufacturing process, and the rule even covers generic chips made by overseas firms, which intends to prevent Huawei from finding loopholes.

Although Huawei is the global leader of smartphones and telecom base stations, we believe that the eventual drop in Huawei"s shipments will be absorbed by its competitors in the medium term, and thus the direct impact from the new rules to be limited for most hardware/device suppliers. However, we are concerned that 1) the supply chain disruption; 2) the possible countermeasures by the Chinese government; and 3) the indirect impact from the delay on 5G rollout, may be the negative factors for the entire tech industry. Because of the increasing risk and lower visibility, we expect market turbulence in the short run. We note some possibility of the U.S. government issuing exemptions to the rules.

Key Takeaways

× Xiaomi and Samsung Electronics may be the beneficiaries in the handset businesses, but the positive impact for Samsung should be limited.

× Mediatek is significantly affected as the new rules do not allow selling general chips to Huawei, which had been seeking to purchase foreign chips to replace its self-designed system on a chip, or SoC.

× Sunny Optical may be influenced in the short run because of its larger revenue exposure to Huawei, while the risk for Largan would be smaller.