Qualcomm Stock Soars, but More China Tariffs Could Spoil the Party

 | Sep 13, 2018 | 3:20 PM EDT
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Qualcomm's remarkable run could run into trouble as tariffs on China impact its key business areas.

The semiconductor industry at large has been under pressure on the trade war this year as fear that the largest market for semiconductors, China, could be diminished for U.S. based chip-maker.

Companies like Advanced Micro Devices  (AMD) , Nvidia  (NVDA) , and Qualcomm, Inc.  (QCOM)  have enjoyed double, and even triple, digit share gains year to date. Qualcomm has gained 4.5% in Thursday's trading alone.

Yet, the more macro-sensitive Philadelphia Semiconductor Index has posted a relatively modest gain of just over 6%, reflecting a perceived riskiness from investors.

The shares jumped 3.9% to $74.52 per share as of 3:22 p.m. after rising as high as $75.36 earlier, a 52-week record.

Further tariffs that directly impact the industry could turn the jitters into panic and hold back the historic share gains that Qualcomm and some of the industry's most important customers like Apple, Inc. (AAPL) are enjoying.

"As of right now smartphones are not on the tariff list and there's not a big impact on raw semiconductors yet," Sanford C. Bernstein senior research analyst Stacy Rasgon told Real Money. "But if Trump says he has another $267 billion coming, that means basically everything else."

The concern over a next round of tariffs certainly caught the eye of Charles Schwab CIO of equities Omar Aguilar, who told CNBC that the impact on semiconductor earnings could be dire.

"It is more of an investor issue than an economic one," he explained. "What this could do for semiconductors is it could actually take up to 25% of their earnings if these tariffs go into effect."

Rasgon expounded on the point, noting that tariffs and their negative impact on consumers in both the U.S. and China have an immediate pressure on the semiconductor market.

"Demand has been strong, but tariffs could have an impact on demand which would trigger more pressure on the sector," he explained.

Input Impact

Tariffs also threaten to dampen analysts' confidence in the company and its ability to mend fences and ride on the coattails of Apple's continued success.

As the potential new tariffs to impact $267 billion in goods was announced on Friday, Apple came out vocally against the tariffs and the threat they pose to its business.

A letter decrying the tariffs released by Apple on Friday explained that the company sourced over $50 billion of inputs last year from its 9,000 U.S. suppliers across the country and noted semiconductors as a particularly prominent input.

The letter laments the effect that proposed tariffs may have down the supply chain to these companies.

The letter builds on an August SEC filing which similarly talks about the negative impact of tariffs.

"Tariffs could increase the cost of the company's products, the components and raw materials that go into making them," it explains. "These increased costs could adversely impact the gross margin that the company earns on sales of its products."

Despite being the world's largest taxpayer and a maintaining a valuation over $1 trillion, the company did not receive a sympathetic response from the president Trump as he suggested the company simply move more operations to the U.S.

Qualcomm concerns will add to a growing apprehension about the ongoing trade standoff.

While there is a very bullish sentiment on Qualcomm at the moment, there is also room for caution on the stock as macroeconomic pressure looms large for the company, its partners, and the broader sector.

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