USA Companies Affected by the US-China Trade War
May 07 2019 - 10 Stocks Face Big Problem In Trump China Trade War Including Large Cap Techs By Investors Business Daily
Getting a big chunk of your business from China used to be a bragging point. Now, it's a point of worry with the China trade war.
Talks of a trade and tariff war between China and the U.S. renewed this week, and that's stoking concerns about the flow of goods between the two key trading partners. The development is especially troubling for the 10 companies in the Standard & Poor's 500 that collected 20% or more of their revenue from China over the past 12 months, according to an IBD analysis of data from S&P Global Markets Intelligence.
Only companies that disclose their revenue from China are included in S&P's analysis.
China Trade War And Concentration Risk
The technology sector risks the most from the U.S.-China trade tensions. Nine of 10 companies with the highest reported percentages of revenue from China hail from the tech sector. This underlies the high-stakes wager that policy makers are taking by dragging out the tariff talks for this critical global industry.
Technology stocks are also a driving force powering the 10-year bull market rally and economic expansion.
A China Trade War Case In Point
Consider IPG Photonics (IPGP), a company that makes radio technology primarily used in mobile operations. The company got 43% of its revenue from China the past 12 months, S&P says. In fact, one of IPG's customers, Han's Laser, not only is based in China but accounted for 12% of revenue alone in 2018.
Already the company pointed out in a disclosure that net sales did not pick up in the second half of 2018 as usual due to "uncertainty caused by the trade war between the United States and China." Shares of the company are down nearly 8% this week as investors process the risk.
Tom Hayes of Northcoast Research told IBD the company's reliance on China presents issues, but he feels it can adjust. "During the most recent slowdown and aggressive pricing environment China provides some unique challenges; ones I think IPGP can work through. They have moved some production out of Germany to Russia to reduce costs as well as continue to drive cost saves on the production of the lasers," he says.
IPG Photonics slid 1.8% Tuesday to close below its 50-day moving average.
China Trade War: Tensions Matter
Qorvo (QRVO) shows another risk. The company that makes cellular radio technology collected $474.8 million in revenue from China during the three months ended Dec. 29, 2018. That's quadruple the revenue from it second most important country, Taiwan. Chinese demand had been robust and a key area of growth.
"Revenue increased for the nine months ended December 29, 2018, as compared to the nine months ended December 30, 2017, primarily due to higher demand for our cellular RF solutions in support of our customers based in China as well as higher demand for our base station and Wi-Fi products," the company said in its quarterly report.
Trade shifts present a real issue for the sector, says Brian Colello, analyst at Morningstar. "Ongoing trade tensions between the U.S. and China, and a rise in tariffs, could be a significant headwind for many chipmakers that serve a wide array of end markets, such as Qorvo. In addition to Qorvo's RF chip sales to Chinese handset makers (Huawei, Oppo, Xiaomi, etc.), Qorvo also has high exposure to Apple, which has a decent portion of its iPhone demand coming from China."
Qorvo stock fell 0.9% to 73.68 in the stock market today. However, effects of trade wars aren't having much of an effect yet. Shares jumped in afterhours trading on quarterly earnings that solidly beat expectations.
More China Trade Problems Ahead?
Fears are that damage from a trade war could spread. For many semiconductor firms, if not tech firms in general, a weaker Chinese economy could weigh on global demand, Colello says. "Broad-based chip demand has been sluggish for the past six months or so, mostly stemming from the prior uncertainty around a trade settlement. Failure to strike a deal in the near-future could prolong these headwinds for many chipmakers, such as Qorvo and its peers."
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