Export controls pose significant risks to the U.S. semiconductor industry

Last week, citing national security concerns, the U.S. Department of Commerce announced the addition of Huawei and its affiliates to the export control "Entity List." This move led to a collective decline in the stock prices of major U.S. related industries on the first trading day of this week. Analysts point out that export controls may pose significant risks to the U.S. semiconductor industry, including market contraction and reduced profitability.

On the 20th, major U.S. stock indices measuring the semiconductor industry's performance fell. Among them, the Philadelphia Semiconductor Index dropped by 4.02%, and the S&P 500 Semiconductors and Semiconductor Equipment Industry Index fell by over 3.8%. In terms of individual stocks, the share prices of major U.S. semiconductor manufacturers suffered heavy losses. At the close, Qualcomm's stock price fell by 5.99%, Broadcom by 5.97%, Micron by 3.99%, NVIDIA by 3.05%, AMD by 2.98%, and Intel by 2.96%.

Additionally, a number of well-known U.S. tech companies also saw their stock prices decline that day. Alphabet, Google's parent company, closed down 2.02%, while Apple Inc. fell by 3.13%. Dragged down by the decline in the technology sector, all three major U.S. stock indices closed lower that day.

This round of stock market volatility reflects capital market concerns about the prospects of the U.S. semiconductor industry. On the 20th, the U.S. Department of Commerce issued a 90-day "temporary general license," delaying the implementation of transaction bans on existing products and services of Huawei and its affiliates in the United States. However, analysts note that under the shadow of export controls and trade disputes, the U.S. semiconductor industry will still face significant risks.

Research from the U.S.-based Evercore ISI group indicates that Huawei, as the world's largest supplier of communications equipment, purchases $20 billion worth of semiconductor products annually. This also means that the U.S. government's export controls could cause U.S. semiconductor product suppliers to lose a major client, thereby facing the risk of market contraction.

If export controls lead to U.S. companies losing the Chinese market, it will inevitably impact their profitability and risk resilience. Mitch Steves, an analyst at RBC Capital Markets, believes that U.S. export controls may hurt companies with significant revenue exposure in the 5G field and the Chinese market.

The Semiconductor Industry Association recently issued a statement expressing the industry's concern over the setback in trade negotiations and the recent escalation of trade disputes, hoping that China and the U.S. can reach a mutually beneficial trade agreement.

Under the influence of market anxiety, some investors have turned cautious about the investment outlook for the U.S. semiconductor sector. An analysis report by Morgan Stanley analysts Joseph Moore and Craig Hettenbach stated that the semiconductor industry currently faces high inventory and low demand, with memory products even experiencing a supply glut not seen in decades. The report advises investors to reduce their holdings in semiconductor stocks.

C.J. Muse, senior equity research analyst at Evercore ISI, noted that export controls will cause U.S. semiconductor manufacturers to slow down investment, thereby weakening the competitiveness of the U.S. semiconductor industry. He emphasized that these issues represent "national security concerns that the U.S. government should consider."

Excerpted from China Finance.