NeoPhotonics Corp., which according to Bloomberg supply-chain data derives 47 percent of its revenue from the Chinese telecommunications equipment maker, gained 0.3 percent in the holiday-shortened session that saw major indexes retreat. Inphi Corp., which gets about 14 percent of its revenue from Huawei, rose 1.7 percent, while Oclaro Inc., which has 11 percent revenue exposure, was higher by nearly 3 percent.
Analysts describing the push by the Trump administration as the latest example of elevated trade tensions between the US and China, as opposed to a new risk.
“If there was going to be any effect, this is where I’d expect it to show up, but it doesn’t look like investors are too worried,” said Ray Rund, head of research at Shaker Investments. The move was “just another symptom of the problems we’re having, of the administration’s attempts or desire to put some pressure on China as the two countries get ready to talk,” he said.
“This plays into how it’s a time to be cautious on the US-China relationship, but if someone isn’t using Huawei, they won’t start now, and if they already were, they probably have a significant investment that won’t change because of this,” Rund said.
The Wall Street Journal, citing unidentified people familiar with the matter, reported that the US government had reached out to counterparts and executives in countries including Germany, Italy and Japan about perceived cybersecurity risks from Huawei equipment. The push comes ahead of a highly anticipated meeting between US President Donald Trump and Chinese leader Xi Jinping at the Group of 20 summit in Argentina next week, where the two countries are expected to focus on trade issues.
Trade tensions between the US and China have been a headwind for China-exposed technology companies throughout 2018. However, the group has also been pressured by signs of weakening smartphone demand. Lumentum Holdings Inc., which gets about 11 percent of its revenue from Huawei, recently plummeted after warning that one of its largest customers -- widely interpreted as Apple -- had meaningfully cut shipments. The stock was down about 0.5 percent on Friday.
Wayne Kaufman, chief market analyst at Phoenix Financial Services, noted that many tech stocks with China revenue exposure had already seen heavy volatility in recent weeks, which he speculated could lessen the impact of new details coming out around a narrative that investors are already watching closely.
“The fact that companies with Huawei exposure aren’t getting hammered today suggests the issue is already built in, or that it isn’t going to have an impact,” he told Bloomberg via phone, describing the push against Huawei as “about the optics of the trade negotiations rather than anything that will cause individual companies to see an impact.”
However, he added, “this kind of rhetoric points to both the US and China digging in their heels and being intransigent, which to me makes the odds of a benign resolution on trade unlikely. So even though you’re seeing some strength today, this issue is still out there, and it seems likely that stocks haven’t fully priced in the odds of things getting worse.”