While the Nasdaq was up nearly 1% Thursday, the Philadelphia Semiconductor Index was down 1.4% after the Commerce Department announced it plans to put Huawei and 70 affiliates on an "entity list" that prevents it from buying components from U.S. suppliers without U.S. government approval.
Mobile chip suppliers Skyworks (SWKS) and Qorvo (QRVO) , both of which are estimated by Mizuho Securities to get over 10% of their sales from Huawei, were each down over 6%. Qualcomm (QCOM) , which both supplies Huawei and is in a patent-licensing dispute with the company, was down 4%. Other big decliners include Xilinx (XLNX) , Lumentum (LITE) and Inphi (IPHI) .
Meanwhile. some major telecom equipment suppliers are outperforming after the Trump Administration issued an executive order banning the use of "information and communications technologies or services" from any foreign entity deemed to be a national security risk. While not mentioned by name, the move was widely seen as targeting Chinese telecom equipment suppliers such as Huawei and ZTE. Nokia was up 4%, Ericsson was up about 2% and Cisco Systems (CSCO) , which delivered a solid April quarter earnings report on Wednesday afternoon, was up around 7%.
Though a de facto ban on the use of Huawei and ZTE's gear on U.S. telecom networks was expected by many, the Trump Administration's order might also be fueling hopes that various U.S. allies will issue similar bans. To date, their responses to U.S. pressure to ban the use of Huawei and ZTE's equipment have been very mixed, with countries such as the U.K. and Japan issuing partial bans and others such as Germany proving more reluctant to go down that route.
While only time will tell just how far foreign bans on the use of Huawei and ZTE's equipment extend, it is fair at this point to think that the likes of Nokia and Ericsson -- and to some extent, equipment vendors such as Cisco, Juniper Networks (JNPR) and Samsung -- will see their sales to telcos, already set to benefit from 5G network rollouts, get a boost from the bans.
On the other hand, though the Commerce Department's announcement introduces a fresh dose of uncertainty for U.S. chip suppliers already stung in recent months by trade tensions and a cyclical industry downturn, there's a good chance that a worst-case outcome (i.e., a full-blown ban on the sale of chips and components to Huawei, if not both Huawei and ZTE) will be avoided.
For now, the Commerce Department is merely calling for chip and component sales to Huawei and its affiliates to be subject to government review, rather than for them to be fully banned. Moreover, given that Huawei is now a smartphone, IT and telecom equipment giant with over $100 billion in annual sales, Washington has to be well-aware that a long-term parts supply ban would both do major damage to the sales of many U.S. chip suppliers and -- due to the crippling effect it would have on Huawei's business -- guarantee that Beijing would retaliate against some of Huawei's U.S. rivals. These rivals, it should be noted, include everyone from Cisco to Apple (AAPL) to Dell Technologies (DELL) .
For these reasons, the selloffs seen on Thursday among chip and component vendors with Huawei/ZTE exposure look like an overreaction, at least until credible signs emerge that Washington is thinking about fully banning parts sales to Huawei and/or ZTE rather than simply requiring government reviews. Though markets did arguably get too complacent about the lingering business risks facing chip stocks as the group rallied to new 52-week highs, it's much too early to assume the worst about the Commerce Department's announcement.
