Qualcomm Plunges as China Vows Retaliatory Action Against U.S.

Qualcomm Plunges as China Vows Retaliatory Action Against U.S.
May 18, 2020

 

Qualcomm Inc (QCOM: NASDAQ) shares were dumped by investors on Friday after reports from China indicated likely retaliation against the U.S. companies, mostly in the tech space, if the U.S. moves forward with its plan to prohibit shipments of semiconductors to Huawei Technologies by chip manufacturers. Notably, on Friday, the U.S. Commerce Department stated that it was updating an export rule to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology.”  The stock of Qualcomm closed Friday’s trading at $75.77, down $-4.10 or 5.13% from the prior close.

The amendment to curb exports of components is a big shock to Huawei, the second-largest smartphone manufacturer in the world. It is also a big blow to Taiwan’s TSMC, one of the top manufacturers of integrated circuits for Huawei’s HiSilicon division. The U.S. decision will have a grace period of 120-days.

The U.S. is also in touch with its allies to bring about a blanket ban on Huawei’s telecom (5G) hardware on the assumption that it could be utilized by Beijing for under-cover operations. The Commerce Department also alleged that Huawei continues to use U.S. software and technology to design chips even though it was included in the blacklist last May.

Under the new rules, foreign enterprises that utilize the U.S. semiconductor manufacturing hardware will have to obtain a U.S. license before shipping specific I.C.s to Huawei or HiSilicon.

Additionally, Huawei needs approval from the U.S. Commerce Department to purchase certain chips or utilize certain semiconductor designs associated with the U.S. software and technology.

Wilbur Ross, Commerce Secretary, explained that the rule change is intended to “prevent U.S. technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.” He further stated that Huawei and its affiliates “have stepped-up efforts to undermine these national security-based restrictions.”

The Commerce Department also justified the decision by saying that “announcement cuts off Huawei’s efforts to undermine U.S. export controls.”

As per a survey report published by China’s Everbright Securities, several manufacturers of chips depend on hardware sold by U.S. firms such as KLA, Lam Research, and Applied Materials.

Last month, the U.S. Federal Communication Commission (FCC) initiated measures to shut down three China government-controlled telecom enterprises, highlighting the threat to national security. Last week, U.S. President Donald Trump extended the ban on U.S. companies from utilizing telecom hardware manufactured by firms perceived as a threat to national safety, a decision believed to be intended against Huawei and ZTE Corp.

Following the White House’s decision to ban Huawei from accessing U.S. chips, China’s state-backed media Global Times stated that Beijing is prepared to retaliate by placing the U.S. enterprises on an “unreliable entity list.”

Specifically, the news report states that Beijing will scrutinize and impose limitations on U.S. enterprises such as Apple, Qualcomm, and Cisco, in addition to the termination of Boeing aircraft purchase agreements.

The U.S. tech companies operating in China, including Qualcomm, are expected to face rough weather due to the heightening tensions between the U.S. and China. Therefore, the stock of Qualcomm is expected to remain range-bound with bearish bias in the short-term.

The historical price chart indicates that the stock faces resistance at 80. The next support is anticipated only near 57. Additionally, the stock is also trading below its 50-day moving average. The Chaikin money flow indicator also has a negative reading. Therefore, we are anticipating the stock to remain bearish in the short-term.

qcom - technical analysis - 18th May 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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