6 Big Techs Stocks May Get Slammed in a Trade War

Tech companies are bracing for the impact of an escalating trade war between the U.S. and China as the Trump administration gets set to announce new a new set of trade initiatives expected later this week. The fallout could be enormous, hitting the sales, earnings and stock prices of big U.S. tech firms with significant exposure to China, including Cisco Systems Inc. (CSCO), Dell Technologies Inc. (DVMT), HP Inc. (HPQ), International Business Machines Corp. (IBM), Intel Corp. (INTC) and Microsoft Corp. (MSFT).

The trade actions also threaten to hurt a long list of smaller companies such as Unisys Corp. (UIS), according to Barron’s. Until now, U.S. chipmakers with heavy China exposure had been seen as the tech companies most affected most by these tensions. 

  Market Value (billions) 
 Cisco Systems  $204.85
 Dell Technologies  $65.93 
 HP  $38.01 
 IBM  $128.44 
 Intel  $242.90 
 Microsoft  $766.85 

Tech Trade-War Targets

The new initiatives would strike the U.S. technology sector both by limiting China’s ability to invest in it as well as blocking technology exports from the U.S. to China. The specific tech sectors expected to be most affected are those that China considers strategic to fulfilling the aims of its Made in China 2025 initiative, the goal of which is to become a global leader in 10 broad sectors of technology, according to The Wall Street Journal

Some of these sectors include advanced-information technology, robotics, aircraft and aircraft components, advanced rail equipment, electrical-generation and transmission equipment and pharmaceuticals and advanced medical devices. Nonetheless, the initiatives are expected to hit the tech sector more broadly as well. (See also: U.S. Government To Block Chinese Investments In Tech Companies).

Big Tech Damages

Being part of one of the key sectors of the Made in China 2025 that the White House is trying to thwart with the new initiatives as well as having significant exposure to China, the seven information and communications technology firms mentioned above will especially feel the effects of the escalating trade war.

A recent study by the U.S.-China Economic and Security Review Commission concluded that the supply chains of Cisco, Dell, HP, IBM, Intel, Microsoft and Unisys source over half of their products and components from China. That exposure makes the supply chains of these tech firms vulnerable to threats like a trade war.

There is still a lot of uncertainty, however, on how extensive the new rules will be or even what Beijing’s reactions will be. This uncertainty itself is leaving a lot of tech firms in the dark as to what to expect and how to plan for the future. “The goal posts here continue to move, causing grief and headaches,” said Dean Garfield, chief executive of the Information Technology Industry Council, to the WSJ.

FANGs to Be Spared

The FANG stocks—Facebook, Amazon, Netflix and Google's parent Alphabet—are expected to be fairly insulated from the effects of tariffs and retaliatory actions from China. Facebook and Google’s search function are blocked while Netflix and Amazon both have only a minimal presence in China, limiting their exposure to a trade war, according to Barron’s.

Apple Inc., however, which shipped more than 41 million iPhones to China over the last fiscal year, brought in almost 20% of its revenue from China over that same period. While President Trump assured Apple CEO Tim Cook that iPhones produced in China would be spared from tariffs, there’s no telling what Chinese President Xi Jinping will do in response. But judging by Xi’s warnings to strike back, Apple should brace for collateral damage, at the very least. (See also: Taiwan Semi Warns: Trade War Would Hurt Apple).