When one door closes, a window opens, as they say. In the case of Huawei being blacklisted by the Trump administration, that might open a window for non-U.S. semiconductor companies to jump through.
While major European semiconductor companies such as STMicroelectronics (STM) , Infineon Technologies (IFNNY) , ASML Holdings (ASMLF) , ams AG (AMSSY) , and NXP Semiconductors (NXPI) are following the trend of their U.S. peers like stock of the day Qualcomm (QCOM) on Monday, the fact that they are not beholden to Trump's hawkish stance could be a big bonus for the companies.
A spokesman for Infineon said Monday that the company's exports to Huawei are not subject to U.S. restrictions, seemingly at odds with reports from Nikkei that it had agreed to comply with restrictions.
As Europe did with resistance to U.S. and Australian calls for a ban on Huawei's 5G equipment, the region has remained silent on the Chinese company's status for its firms. Given the sidestepping of trade restrictions for the European chipmakers, they could be poised to fill the void left by larger U.S. competitors that have long been dominant in the region.
The consolidation of major players in the region could increase the appetite of Chinese companies for consumer European chips as well.
Bloomberg recently reported that Infineon was in talks with ST Micro about a prospective acquisition. Such an acquisition would need to come before Chinese regulators, which has often been a difficult hurdle, as exemplified by the attempted hostile takeover of NXP by Qualcomm, but could be made much easier if it is seen as necessary for Chinese tech companies.
Such a deal would certainly get much more favorable treatment than Nvidia's (NVDA) proposed deal for Mellanox (MLNX) that is now thrown into limbo, and would offer two catalysts for some of the more speculative semi stocks on the continent.
To be sure, many of the companies will feel pressure to comply with U.S. action, given the American tech sector is another massive end-market for European chip companies. Further, the stockpile of inventory on behalf of Huawei ahead of the ban could worsen the supply problems that led many semi stocks south in late 2018.
"We continue to see very high inventories on semiconductor balance sheets and in the channel, weak end demand in nearly every semiconductor end market, a once-in-a-generation magnitude of memory oversupply, and capital spending that hasn't adjusted enough to feel comfortable with all of that," Morgan Stanley warned in a note to clients on Monday. "The strategy team sees an earnings recession that is already upon us, fairly stagnant end demand, a weaker tech capital spending outlook, and significant negative tail risk around trade negotiation outcomes. Altogether, we think investors should be reducing positions."
While the note is primarily focused on U.S. companies and their road ahead, the supply issues for memory reverberate globally and Huawei's actions to circumvent U.S. trade action could well exacerbate the issues on the same scale.
Overall, if one must play the semi space, the European stocks appear to be the best positioned right now and may have received undue punishment for the actions of a U.S. administration.
Still, it's far from bankable, and investors should rightly proceed with caution.
