Trade war between US and China began in 2017 with US launching investigation into Chinese trade policies. It resulted in US imposing tariffs on billions of dollars’ worth Chinese products and vice versa. Optimism over the talks made between the countries in December faded away as China reneged blaming US for changing the terms of the negotiation midway through the talks.  The war intensified with US putting Huawei on export blacklist in May 2019.

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Semiconductor industry is one of the main industries which will get affected with the trade war. Consumer electronic products manufactured in China and imported to US will get a price hike, which will increase the cost of US semiconductor suppliers. US semiconductor companies including major ones like Qualcomm, Micron, and Broadcom has a huge amount of revenue dependant on China. It will also affect GPU producers like AMD and NVIDIA since US might prevent shipments of semiconductors to China or will tax them heavily.  The trade war can also lead to accumulation of inventory beyond the required level. While US holds advantage over chip design, China has a huge power in controlling the electronic devices and components supply chain. The share prices of companies like Applied Materials, which supplies equipment and services to manufacture semiconductor chips for electronics has plunged as the trade war has intensified.

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Conclusion

The market is severely affected by the trade war and weak demand from China led by excess inventories. However, increasing adoption of new technologies including AI, IoT, and 5G is expected to drive the market during 2019–2025 period. Also, EDA (electronic design automation) software providers will be less affected by the trade war since only a few of their revenue is dependent on China. EDA companies like Cadence and Synopsys has witnessed solid demand, despite the volatility in the semiconductor market.

– Arjun Das
ICT – Research Analyst
Infoholic Research