Semiconductor Winners, Losers In A Potential Sino-American Trade Deal

The hopes of the U.S. and China clinching a trade deal are soaring as a March 1 deadline draws close.

As analysts deliberate several permutations and combinations that are likely to be packaged into the deal, a CNBC report suggested China may opt to increase its semiconductor imports from the U.S. to $200 billion over the next six years.

The Analyst

Discussing the likely impact of such a development, Rosenblatt Securities analyst Jun Zhang said he has Buy ratings on QUALCOMM, Inc. QCOM, Lumentum Holdings Inc LITE, NeoPhotonics Corp NPTN and Texas Instruments Incorporated TXN. Zhang has a Neutral rating on Inphi Corporation IPHI.

The Environment Today

China's semiconductor imports from the U.S. have totaled roughly $10 billion annually in recent years, Zhang said in a Tuesday note. With most U.S. suppliers packaging their products in Taiwan, the nation has earned the distinction of being the largest semiconductor exporter to China, he said. 

The analyst estimates that U.S. component suppliers have a 50-percent share in the $200 billion to $300 billion in products China exports every year.

A New Scenario

If China requires U.S. semiconductor companies to move packaging to China, Zhang estimates that American exports to China would grow by five to six times. Under such a scenario, U.S. component suppliers would account for about $100 billion of U.S. exports to China every year, he said. 

Any impact on the Taiwanese supply chain from a potential Chinese move to increase orders from U.S. component suppliers in 2019 — and move packaging from Taiwan to China — would be more short-term than mid-term, the analyst said. 

Zhang expects the anticipated change to positively impact Chinese telecom vendors such as Huawei and high-tech companies, as he said they're the biggest buyers of semiconductors from U.S. suppliers.

Rosenblatt Names Potential Beneficiaries

Qualcomm is expected to benefit at the expense of MediaTek, as the latter still lacks a 5G smartphone chipset.

U.S. chip equipment makers such as Veeco Instruments Inc. VECO and Lam Research Corporation LRCX are likely to take share from European and Japanese companies such as AIXTRON SE AIXXF and TOKYO ELECTRON/ADR TOELY, as China ramps up its internal semiconductor industry.

U.S. communication chipset suppliers such as Lumentum, NeoPhotonics and Inphi would see increased use of their chipsets by Chinese telecom equipment vendors.

As China plunges headlong into the electric vehicle market over the next three years, Cypress Semiconductor Corporation CY, Texas Instruments, ON Semiconductor Corp ON and Cree, Inc. CREE are likely to take share from NXP Semiconductors NV NXPI, Infineon Technologies AG IFNNY and ROHM CO LTD/ADR ROHCY.

Memory Prices Could Drop 

Rosenblatt expects memory prices to take a beating from a potential deal. If China buys more memory products from Micron Technology, Inc. MU, the firm expects Samsung to aggressively slash prices in a bid to maintain market share and push OEMs to buy other types of U.S. components.

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