Qualcomm, Intel and Broadcom are suppliers, Oclaro falls 15%
U.S. chipmakers will feel the sting of the U.S. government’s decision to restrict technology exports to China’s ZTE. Qualcomm and Intel are both suppliers to ZTE, as is Singapore’s Broadcom. (Broadcom is now part of Avago, and the combined company uses the Broadcom name.)
Chip stocks fell more than the overall market today, with shares of Qualcomm down 1.5% for the day, Intel off 1.2% and Broadcom ending the day down 2.7%.
Shares of Oclaro fell more than 15% on Tuesday. The maker of optical components and modules said that ZTE is a customer for many of its products, and will be the source of more than 10% of Oclaro’s revenue during the current quarter.
All of these companies supply components for the smartphones and/or network infrastructure made by ZTE. The loss of ZTE’s business is not expected to have a huge financial impact on any of them in the short term, but it could in the longer term. Without these U.S. suppliers, ZTE (and the Chinese government) have a big incentive to invest in Chinese chipmakers. Even if the export restrictions are lifted in the future, some of ZTE’s business may not come back.
Starting today, U.S. companies that want to sell goods to ZTE need to apply for an export license from the Department of Commerce. The department said yesterday that companies should expect those applications to be denied.
ZTE said it wants to cooperate with the U.S. and is working to resolve the issues. The company is accused of setting up subsidiaries to sell U.S. technology to Iran. For example, many of its smartphones use Qualcomm chipsets.
“Advanced U.S. chips from Qualcomm and others are inside many ZTE handsets … in violation of current restrictions on selling to Iran,” said analyst Will Strauss of Forward Concepts. “I’m sure that Iran will buy logic and processor chips directly from Chinese chipmakers where they can, and smuggle in others (like memory chips, none of which are currently made in China.)”
Strauss said South Korea currently dominates the market for memory chips.
According to The Wall Street Journal, internal documents show the Chinese company wanted to convince its Iranian customers to buy products that were not made in the U.S. so it could comply with its trade agreements. “Plan B” was to set up shell companies to sell the Iranians the American products secretly.
The documents said ZTE needed to “increase the frequency of circulation of goods,” presumably to make it harder for the United States to figure out where they came from originally.
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