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Huawei Suppliers Continue to Reel as Investors Gauge Trade Risks

Jeran Wittenstein
Huawei Suppliers Continue to Reel as Investors Gauge Trade Risks

(Bloomberg) -- U.S. stocks of companies that supply components to Huawei Technologies Co. sank for a second day as investors assess the fallout from the U.S. government placing the Chinese telecommunications giant on an export blacklist.

Semiconductor makers and optical component suppliers were among the biggest decliners on Friday. NeoPhotonics Corp., whose products help transmit data in telecom networks, fell as much as 28%, following a 21% decline on Thursday. NeoPhotonics gets about half of its revenue from Huawei, according to Bloomberg supply chain data.

The volatility comes as investors attempt to handicap whether the Trump administration’s actions have long-term implications or are simply a negotiating tactic in the broader trade dispute with China.

"The most important question is what is the U.S. government trying to accomplish," wrote Michael Genovese, an analyst with MKM Partners, who covers a number of Huawei suppliers, including NeoPhotonics. "If the answer is to destroy Huawei and slow the development of 5G Networks in China, then the U.S.-China relationship is likely headed to a dark place." If the ban is a "bargaining chip" then the sell-off will probably turn into a "great buying opportunity," he said.

Optical component makers Inphi Corp. and Lumentum Holdings Inc. fell more than 5%. Both companies have seen their valuations sink by more than 16% in the past two days. Fabrinet, a contract manufacturer that counts Lumentum as its biggest customer, has fallen 12% in the same period.

Qorvo Inc. and Skyworks Solutions Inc., whose radio-frequency chips are used in mobile phones, have both fallen more than 8 percent since Wednesday’s close.

Huawei’s troubles aren’t all bad news for U.S. companies. Huawei has as much as 30% market share in the global optical market, which is now at risk, according to Nomura Instinet analyst Jeffrey Kvaal. Ciena Corp. is among U.S. firms that could gain share and could see sales rise by 10%,. Kvaal said. The stock gained has gained 4% in the past two days.

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley

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