U.S. stocks fell Thursday amid an explosive inquiry into impeachment of President Trump and concerns that U.S.-China trade talks won’t be fruitful in October.
The Nasdaq Composite dropped 0.7% mid-day then rallied later. Chipmaker stocks such as Micron Technology dropped by 2%.
Also on Thursday, Bloomberg reported that an unnamed government official told the news outlet that the U.S. is unlikely to extend a waiver to allow American firms to supply electronics and related products to China’s Huawei, the world’s largest telecom equipment provider.
Huawei has been on an Entity List since May, restricting U.S. companies from making sales to the company over national security concerns. In 2018, Huawei spent $11 billion on electronics products from U.S. firms and more than 130 companies have been seeking special permission from the U.S. Commerce Department to continue sales of U.S. goods to Huawei despite the blacklisting. The office of the U.S. Trade Representative did not respond when asked by FierceElectronics on Thursday about whether talks with China will resume in October or the status of whether the waivers will be granted.
On Tuesday, President Trump’s address to the United Nations noted that China has “declined to adopt promised reforms,” which led some financial analysts to conclude that trade talks might not even happen. A report on CNBC citing unnamed sources late Thursday said the trade talks will resume in Washington on Oct. 10 and 11.
Also Tuesday, House Speaker Nancy Pelosi announced an official inquiry into impeachment of President Trump based on a whistleblower complaint. The unnamed whistleblower alleges the President used his office to solicit interference from Ukraine in the 2020 U.S. presidential campaign, according to a complaint made public Thursday.
One market analyst at London Capital Group seemed to summarize the confluence of events, which could hit the electronics industry especially hard. “The political turmoil around Donald Trump’s official impeachment inquiry, combined with rising fears of no agreement with China in October trade talks turned the risk sentiment off across global markets,” wrote Ipek Ozkardeskaya of London Capital.
Despite all the turmoil, some industry analysts have remained upbeat about some sectors of the electronics market for 2020 after a tough 2019. SEMI, the electronics manufacturing industry association, said Wednesday it is sticking with an earlier forecast for 2020 calling for equipment sales growth to resume by 11% after an 18.4% decline in 2019. Equipment sales were $52.7 billion in 2019 from $64.5 billion in 2018, but will rise to $58.8 billion in 2020, SEMI said in July.
The equipment market recovery will come on the strength of memory spending and new projects in China, which will make China the biggest market globally for the first time at about $14.5 billion. Korea will be second at $11.5 billion and Taiwan a close third at $11.5 billion, SEMI said.
“We still expect international device makers Samsung, SK Hynix and Intel to invest $5 billion next year in China” out of the SEMI $14.5 billion market forecast, said Clark Tseng, director of industry research for SEMI in an email to FierceElectronics. In addition, Chinese memory suppliers are expected to spend $2 billion in 2020, which is almost 30% of overall memory equipment investments in China of about $7 billion. That $7 billion is about half of China’s overall market for 2020, he said.
“The equipment investment will lead to the growth of new fab capacity and chip production in China,” Tseng added. “We expect Chinese memory makers’ output will likely start in mid-to-low end consumer applications until they have more advanced and competitive technologies.”
Clearly, SEMI views equipment spending as an early indicator of chip production, which has also been down globally in 2019, and could be down overall by 13% by the end of 2019, according to analysts.
“It will take a few years from buying equipment to producing chips in world-leading quantities,” said Linley Gwennap, principal analyst at the Linley Group. “Also, there is a difference between leading in sales volume and leading in technology…China has a long way to go to become a leader in the most advanced technology nodes.”
Gwennap added that because China doesn’t have capability to produce advanced chipmaking tools, the U.S. “can make it difficult for China to build new fabs.” He noted that the U.S. was able to shut down emerging Chinese DRAM maker Fujian Jinhua last year using sanctions. “These sanctions could be even more effective if the U.S. would coordinate with other countries such as Netherlands that produce these tools.”
Assuming the talks with the U.S. and China proceed, Gwennap noted that many U.S. electronics companies have high hopes. “Many U.S. semiconductor vendors are very concerned about IP theft in China, which is difficult and time-consuming to resolve in court, particularly in Chinese courts,” Gwennap said. “China also places other barriers such as requiring joint ventures on foreign companies that want to sell in China.”
“Although broad tariffs may not be the best tool, I believe it is essential to establish a level playing field that allows US companies to sell freely in China and vice versa,” Gwennap said.
How anything becomes level is thus far unclear.
One hostage of the U.S.-China trade standoff is the Huawei Mate 30 smartphone, which was announced Sept. 19 in Munich with no shipping date. So far, it won’t have Google apps because of the U.S. blacklisting on Huawei, which means Google can’t provide the Google suite for the phone.
“The U.S. Department of Commerce is using Huawei as leverage," said Roger Entner, an analyst at Recon Analytics.
“The general opinion is the Mate 30 wihout Google won’t appeal to consumers but it has fantastic hardware otherwise,” Entner said. “It’s a multibillion dollar hostage.”