Apple suppliers slide on China anxiety, rising competition from Huawei

TAIPEI, Sept 8 (Reuters) – China’s widening curbs on iPhone use by government staff intensified a sell-off of tech stocks on Friday, fanning fears that Apple (AAPL.O) and its suppliers could take a hit from rising Sino-U.S. tensions and growing competition from Huawei.

Apple shares tumbled 6.4% over the last two days, wiping $190 billion off its market capitalisation, dented by news that Beijing has told employees at some central government agencies in recent weeks to stop using iPhones at work.

Adding to the pressure on Apple, Huawei on Friday launched two new smartphones — foldable phone Mate X5 and Mate 60 Pro+ smartphone, a new addition to a series it unveiled last week that captured global attention for its success in beating back against U.S. sanctions.

The series of unexpected new product launches by China’s “national champion,” just days before Apple is expected to unveil new iPhones, is causing anxiety about sales prospects in one of Apple’s biggest markets.

China has been a bright spot for Apple in an otherwise tough period for iPhone sales, as its rival Huawei’s smartphone business was decimated after the U.S. started restricting tech exports to the company in 2019.

Analysts say its new product launches could mark a first step in the company’s come-back efforts to rival Apple.

“It (Huawei) can manage the psychological expectations of the target consumer group before Apple’s press conference,” said Ivan Lam, an analyst at Counterpoint.

“We believe that Huawei’s activity this time was well-prepared and not sudden. Our current outlook for the new product release is better than our previous estimation.”

It was not clear how widespread the curb on iPhone use is, while the number of people employed by the central government agencies in China is not publicly available. Some staff had told Reuters they have not received any such instructions.

But Bank of America estimates that China accounts for up to 50 million in annual iPhone sales and such a ban could cost 5-10 million units a year.

It said the timing of the ban is “interesting” as “the recent launch and availability of a domestic high-end smartphone as a real alternative to an iPhone coincides with the timing of this potential ban.”

U.S. SCRUTINY

Several Wall Street analysts said the curbs show that even a company with a good relationship with the Chinese government and a large presence in the world’s second-biggest economy was not immune to rising tensions between the two nations.

Sino-U.S. friction has worsened in recent years as Washington tries to restrict China’s access to key technologies including cutting-edge chip technology, and Beijing looks to reduce its reliance on American tech.

The U.S. Commerce Department said late Thursday it’s working to obtain more information “on the character and composition” of the new Huawei chip that may violate trade restrictions.

“The restrictions in place since 2019 have knocked Huawei down and forced it to reinvent itself — at a substantial cost to the (Chinese) government,” the department added. “We are continually working to assess and, when appropriate, update our controls based on the dynamic threat environment and we will not hesitate to take appropriate action to protect U.S. national security.”

White House National Security Adviser Jake Sullivan told reporters on Air Force One the U.S. government is trying to get more information about the Huawei chip.

SUPPLIERS TUMBLE

Apple supplier Qualcomm (QCOM.O), one of the U.S. companies with the largest China presence, tumbled 7.2% to lead losses among major tech firms on Thursday.

Other suppliers of the iPhone maker including Broadcom (AVGO.O), Skyworks Solutions (SWKS.O) and Texas Instruments (TXN.O) were also lower, falling between 1.8% and 7.4%.

“This announcement seems to have just refocused investors that the relationship between the U.S. and China is a big risk to current equity prices, particularly in technology,” said Rick Meckler, partner at Cherry Lane Investments.

In Asia, Japanese chip equipment maker Tokyo Electron (8035.T) dropped 4% on Friday, while Taiwan’s TSMC (2330.TW), the world’s largest contract chipmaker and a major Apple supplier, dropped 0.6%.

Shares of ASE Technology Holding (3711.TW), one of the world’s largest semiconductor testing and packaging firms, fell 1.7%, while camera lens-maker Largan Precision (3008.TW) dropped more than 4%.

In China, Luxshare Precision Industry (002475.SZ), maker of connector cables for the iPhone and MacBook, as well as AirPods, and which also owns factories capable of making iPhones, fell 2%. Its shares were also hit last week by the Huawei launch.

Semiconductor shares (.CSIH30184) rose 0.8% after last week’s launch of Huawei’s Mate 60 Pro+ smartphone, spurred by the view that its new chip showed the company had overcome U.S. sanctions.

Sunlour Pigment (301036.SZ) surged 20% and Shenzhen Rongda Photosensitive & Technology Co (300576.SZ) jumped nearly 10% to lead the gains, while Semiconductor Manufacturing International Corp (SMIC) added 0.7%.

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