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Trade Deal to Add Charm to These Technology Stocks in 2020

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The United States and China have reached an agreement regarding phase 1 of the trade deal. The United States has agreed to ease tariffs for certain exports from China. Although the nations are yet to sign the agreement, talks regarding the same are reflecting signs of positivity in the market.

Following the announcement on Dec 13, the Dow closed with a 3-points gain while the Nasdaq and the S&P 500 projected record highs. Intentions to ease tariffs come as a much-needed respite amid the long-drawn tension between the two economic giants.

Per recent developments, the United States will reduce tariff burden on certain agricultural, manufactured and energy products. According to a report by Bloomberg, tariff relaxation will be applicable for $120-billion products carrying import duties of 15%. However, it will continue to maintain 25% levy on $250 billion of Chinese goods.

Also, the United States has affirmed that it will implicate new policies pertaining to intellectual property, currency and forced technology transfers. Also, the state will suspend import taxes for nearly $160-billion products including smartphones and toys. In exchange, China’s purchase of goods and services from the United States are likely to increase by nearly $200 billion in the next two years.  

Electronic Products Sales Likely to Rise

The Zacks Computer and Technology sector is likely to emerge as one of the key gainers from this development. Quite a few technology big wigs in the United States depend on China for manufacturing and sales, making them quite vulnerable to the trade war scenario.

If the deal to ease tariff pressures is signed, it will provide a boost to many technology players, especially those in the semiconductor space.

The news came in as a sigh of relief for Apple (AAPL - Free Report) , since it has significant exposure to China. Per an insight by CNBC, Apple produced as much as 218 million iPhones in 2018 and nearly all of them were assembled in China.

According to a report from Reuters, the news of tariff suspension, which has come in days before Christmas, is likely to boost imports of $115 billion worth of iPhones, laptops and other electronics.

Gainers From the Semiconductor Space

Semiconductor suppliers have a significantly high ‘ship-to’ revenue exposure to China. Hence, chipmakers for Apple’s devices have enough factors to benefit from.

Markedly, being an important supplier to Apple, Qorvo (QRVO - Free Report) is likely to be one of the prominent gainers.

Qorvo’s revenues from China amounted to nearly 57% in fiscal 2019. In fact, this Zacks Rank #1 (Strong Buy) company has been expanding its chips supply in China, especially to Huawei. You can see the complete list of today’s Zacks #1 Rank stocks here.

Year-to-Date Price Performance



In context of 5G deployments in China, Huawei is likely to play an important role in the forthcoming periods. This is likely to be a tailwind for Qorvo as well as other semiconductor players in fiscal 2020.

Micron Technology (MU - Free Report) is another semiconductor company with substantial business ties with China. In May 2019, the company suspended chip shipments to Huawei that contributed nearly 13% to revenues in the first two quarters of fiscal 2019. This was in response to the export ban imposed by the U.S. government.

However, we expect Micron to consider revamping its chip shipments to China in fiscal 2020, if trade liaisons between the nations improve. The company currently carries a Zacks Rank #3 (Hold).

NVIDIA (NVDA - Free Report) and Intel (INTC - Free Report) also have substantial presence in China. The companies have been reeling under weak demand in the region. The situation might improve for these companies if phase 1 of the trade deal is signed. Both the company’s currently carry a Zacks Rank #2 (Buy).

Conclusion

The World Semiconductor Trade Statistics has indicated that the global chip market is set to recover by 5.9% in 2020 after shrinking 12.8% this year. Improved trade ties between the United States and China is likely to help meet these statistics more proficiently.

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