Anyone who failed to appreciate the gravity of the Trump administration’s decision to take aim at Huawei is likely to regret their ambivalence.
To be clear, you can’t blame the experts, who together supplied no shortage of dour quotables following last Wednesday’s decision. Kevin J. Wolf, a partner at the law firm Akin Gump Strauss Hauer & Feld and a former assistant secretary of commerce under President Obama, called the de facto Huawei ban “the trade equivalent of a nuclear bomb”, in an interview with the New York Times, for instance.
We called the Huawei broadside “one of the most consequential foreign policy decisions of Trump’s presidency.”
One crowd upon whom the enormity of the decision wasn’t lost is tech analysts. They’ll likely have a busy week – those who aren’t on vacation, anyway.
On Monday, echoes from reports that Google, Intel, Qualcomm, Broadcom, Xilinx and Infineon have stopped supplying Huawei, ricocheted around markets. (Infineon denied the reports.) STMicroelectronics and AMS AG were crushed in Europe. Semis look set to be summarily routed stateside.
The Stoxx 600 Tech gauge fell sharply. Huawei’s Asian suppliers were crushed too. Sunny Optical fell 5% to start the week and is now off more than 20% in May.
Semis, you’re reminded, were already in correction territory and have fallen nearly 10% in May. That’s on track for the worst monthly performance since the October debacle and the second-worst month in years. Now, it looks like things could get materially worse.
“Speculation that China may suspend business with all suppliers who have agreed to halt supplying Huawei is now escalating pressure on the global Semiconductor space, which has been at the core of Equities leadership YTD”, Nomura’s Charlie McElligott wrote Monday morning.
Morgan Stanley added insult to injury, calling the scope of memory oversupply a “once-in-a-generation” scenario. Morgan cited lackluster end demand in almost all locales. Capex, the bank warns, has not sufficiently adjusted to take into account the current operating environment.
One certainly hopes Donald Trump thought this through ahead of time. Given how little regard the US president has shown for the inherent danger in severing globalized supply chains, it’s not a stretch to suggest the White House doesn’t fully appreciate the ramifications of the Huawei gamble just yet.
As usual, the market will be forced to deliver the bad news.