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U.S.-China Talks Continue as China Doubles Down on Semiconductors
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President Trump appears to have identified China’s Achilles’ heel, and he’s making the most of it.
Accordingly, the President is doing everything he can to deny China the semiconductors it needs to get to “Made In China 2025” with the goal of forcing the Chinese administration to lower the country’s trade surplus with the U.S. by $200 billion.
We’ve already seen ZTE as a casualty of this war, with management recently telling investors that the inability to access chips from companies like Intel (INTC - Free Report) and Qualcomm (QCOM - Free Report) could be an existential issue.
The U.S. has also blocked every deal China has attempted, directly or indirectly, to acquire American semiconductor companies or technology. Market research firm IC Insights’ president Bill McClean says that China doesn’t have the necessary technology to design and manufacture advanced chips today, even if it can muster the resources. So it’s believed that if the U.S. blocks China’s access to technology and prevents agreements to transfer technology as a condition of doing business in China, the country won’t be able to reach parity/lead in the market.
Since this is exactly what China is looking for, we have the makings of a deal.
So Mr. Trump took to tweeting again late Friday: “Our high level delegation is on the way back from China where they had long meetings with Chinese leaders and business representatives. We will be meeting tomorrow to determine the results, but it is hard for China in that they have become very spoiled with U.S. trade wins!”
That result, according to state-run China Daily, is "the constructive agreement between Beijing and Washington to keep discussing contentious trade issues, instead of continuing the two-way barrage of tariffs, which pretty much brought the two countries to the brink of a trade war."
In the meantime, China is not sitting around. There have been rumblings about a new fund to drive semiconductor innovation in the country and just as the U.S. delegation was meeting with the President, the Wall Street Journal reported that the government-backed China Integrated Circuit Industry Investment Fund Co. was getting ready to announce a 300 billion yuan ($47.4 billion) fund to drive development of its semiconductor industry. In 2014, it had raised 139 billion yuan ($21.8 billion) that was invested in over 70 projects across the country.
Unlike last time when only the government and its agencies invested in the fund, this time, the Ministry of Industry and Information Technology has reportedly also invited U.S. chipmakers. It is, however, doubtful that they will invest in a fund set up to drive them out of business, especially given the current political environment. And also because an excessive supply of Chinese chips will drive down prices in the global market and affect profitability across the industry, thereby slowing down its pace of innovation.
It’s hard to tell where the talks are headed but China is likely to agree to a compromise.
Recommendations
Because of the China related uncertainty on the segment, the semiconductor industry isn’t the best place to invest in right now. While some Zacks Rank #1(Strong Buy) options like Mellanox Technologies , Texas Instruments (TXN - Free Report) , Cypress Semiconductor , Micron (MU - Free Report) and Seagate Technology (STX - Free Report) ) are there, it’s probably a better idea to take a look at the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
U.S.-China Talks Continue as China Doubles Down on Semiconductors
President Trump appears to have identified China’s Achilles’ heel, and he’s making the most of it.
Accordingly, the President is doing everything he can to deny China the semiconductors it needs to get to “Made In China 2025” with the goal of forcing the Chinese administration to lower the country’s trade surplus with the U.S. by $200 billion.
We’ve already seen ZTE as a casualty of this war, with management recently telling investors that the inability to access chips from companies like Intel (INTC - Free Report) and Qualcomm (QCOM - Free Report) could be an existential issue.
The U.S. has also blocked every deal China has attempted, directly or indirectly, to acquire American semiconductor companies or technology. Market research firm IC Insights’ president Bill McClean says that China doesn’t have the necessary technology to design and manufacture advanced chips today, even if it can muster the resources. So it’s believed that if the U.S. blocks China’s access to technology and prevents agreements to transfer technology as a condition of doing business in China, the country won’t be able to reach parity/lead in the market.
Since this is exactly what China is looking for, we have the makings of a deal.
So Mr. Trump took to tweeting again late Friday: “Our high level delegation is on the way back from China where they had long meetings with Chinese leaders and business representatives. We will be meeting tomorrow to determine the results, but it is hard for China in that they have become very spoiled with U.S. trade wins!”
That result, according to state-run China Daily, is "the constructive agreement between Beijing and Washington to keep discussing contentious trade issues, instead of continuing the two-way barrage of tariffs, which pretty much brought the two countries to the brink of a trade war."
In the meantime, China is not sitting around. There have been rumblings about a new fund to drive semiconductor innovation in the country and just as the U.S. delegation was meeting with the President, the Wall Street Journal reported that the government-backed China Integrated Circuit Industry Investment Fund Co. was getting ready to announce a 300 billion yuan ($47.4 billion) fund to drive development of its semiconductor industry. In 2014, it had raised 139 billion yuan ($21.8 billion) that was invested in over 70 projects across the country.
Unlike last time when only the government and its agencies invested in the fund, this time, the Ministry of Industry and Information Technology has reportedly also invited U.S. chipmakers. It is, however, doubtful that they will invest in a fund set up to drive them out of business, especially given the current political environment. And also because an excessive supply of Chinese chips will drive down prices in the global market and affect profitability across the industry, thereby slowing down its pace of innovation.
It’s hard to tell where the talks are headed but China is likely to agree to a compromise.
Recommendations
Because of the China related uncertainty on the segment, the semiconductor industry isn’t the best place to invest in right now. While some Zacks Rank #1(Strong Buy) options like Mellanox Technologies , Texas Instruments (TXN - Free Report) , Cypress Semiconductor , Micron (MU - Free Report) and Seagate Technology (STX - Free Report) ) are there, it’s probably a better idea to take a look at the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>