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The ban on chipmakers selling to Huawei is having ramifications felt far and wide. Even as the U.S. government decided to delay imposing the restrictions by 90 days, that's not stopping Wall Street analysts from handing out downgrades and urging clients to adjust their portfolios.
It's also hurting the broader market. Tech is the worst-performing sector this month, sliding more than 5%.
While a few analysts remain hopeful for a resolution in the near-term, most weren't taking their chances surrounding the overall uncertainty. Some adjusted their price targets while one analyst went even further and removed a buy rating.
"Huawei accounted for 13% and 8% of Qorvo's F'19 and F'18 revenue, respectively," said analyst T. Michael Walkley. "We believe our estimate reductions will likely prove conservative, as we believe the ban will likely get resolved in the coming months."
"Huawei is the third largest customer for Skyworks and accounted for 10% of the company's F'17 revenue but below 10% for F'18, and we believe Huawei could represent roughly 10% of Skyworks revenue going forward should the ban get lifted due to improving 5G infrastructure demand," Walkley said.
The collateral damage continued this week when telecommunications equipment company Lumentum cut earnings guidance.
"We think the negative revenue impact from lost Huawei sales will likely be higher in 1QFY20 than in 4QFY19 due to there being a full quarter of ban in place," said MKM analyst Michael Genovese. He lowered his price target on the stock to $60 from $72.
One analyst was more succinct in his downgrade of electronic measurement company, Keysight Technologies.
"What's bad for the U.S. tech Industry isn't a positive for KEYS. China-related uncertainty may be an overhang on the shares in the near term," said Baird analyst Richard Eastman who went from outperform to neutral on the stock.
Here are what analysts are saying about stocks downgraded on Huawei concerns:
"Based on the impact from the Commerce Department ban, we are reducing both our Mobile product and IDP estimates with Q1/F'20 revenue declining from $790M to $706M and non-GAAP EPS from $1.29 to $1.01, reflecting the inability to ship to Huawei. While we believe this ban could potentially resolve as part of a broader trade deal in weeks to even months, we have also reduced our F2020 and F2021 estimates given the uncertainty and sharp decline in Qorvo's share price. We have lowered our F2020/F2021 non-GAAP EPS estimates from $5.89/$7.52 to $4.74/$5.84, resulting in us lowering our price target from $87 to $76. We believe our estimate reductions will likely prove conservative, as we believe the ban will likely get resolved in the coming months. Further, should Huawei lose material smartphone share, then OEMs winning that market share would likely have Qorvo content and help offset Qorvo's lost sales to Huawei. With the shares trading at $61.27 at the close on May 20, our lowered price target represents roughly 24% potential upside."
"Huawei is the third largest customer for Skyworks and accounted for 10% of the company's F'17 revenue but below 10% for F'18, and we believe Huawei could represent roughly 10% of Skyworks revenue going forward should the ban get lifted due to improving 5G infrastructure demand. In combination with President Trump's executive order banning "foreign adversaries" from supplying telecoms infrastructure, the ongoing extradition proceedings for CFO Meng Wanzhou, and continued Sino-US trade tensions with the recent tariff expansion, we believe that the impacts of these actions could prove shorter-term in nature and could resolve as part of broader trade negotiations improving with China. Further, we believe the shares have priced in potential extended bans on shipping to Huawei, so we have attempted to update our model to demonstrate the potential impact from an extended ban. Despite the uncertainty from the shipment ban to a roughly 10% customer and potential impact to the timing for the market's 5G uptake given Huawei's leadership position in infrastructure markets, we believe the shares have priced in the news."
"Inphi also sells to Huawei. Last fiscal year Huawei contributed 14% of total revenue. We believe given this exposure, and the abrupt imposition of the ban to Huawei, IPHI may also encounter a revenue reduction for the June quarter, with the Huawei headwind lasting until some agreement is reached between the US and Chinese governments. Suppliers to Huawei can apply to the US government to be allowed to sell to Huawei, but we believe if the US government was inclined to grant such approvals, it likely would not have gone through the effort to add Huawei to the list to begin with. Also, we note that Huawei competitor ZTE is not on the "Entity" list, and therefore available as a conduit to the China telcos. Also, the China telecommunications providers could purchase networking gear from non-chinese network equipment vendors such as Nokia."
"We think the negative revenue impact from lost Huawei sales will likely be higher in 1QFY20 than in 4QFY19 due to there being a full quarter of ban in place. However, we do not think the negative impact will be the full 18% that Huawei contributed in 3QFY19, because we believe other LITE customers will have competitive wins against Huawei and will begin to pick up some of the slack. In particular, we expect Western Optical Systems companies to do well against Huawei outside of China. Outside of China makes up roughly 50% of Huawei's business. We think the positive effects of other OEMs winning against Huawei and increasing orders to LITE will likely grow through-out FY20. Therefore, we are lowering FY20 revenues by 8%, but with a -12% impact in 1QFY20 improving to only -5% in 4QFY20."
"Our perspective, that trade related uncertainty, as it applies to the Tech Sector, ratcheted up as the U.S. added Huawei to the trade restricted list. Huawei is a small direct KEYS customer; however, the negative indirect impact (customers as vendors to Huawei) could weigh on KEYS growth rate. What's bad for the U.S. tech Industry isn't a positive for KEYS. China-related uncertainty may be an overhang on the shares in the near term. Price target to $82, 14X same/unchanged CY20E EBITDA."