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Huawei crackdown

Huawei's Asian suppliers take a beating in stock market rout

Share prices fall as much as 27% following a US-imposed export ban

While 36% of Huawei's key suppliers are based in the U.S., roughly 60% hail from Asia.   © Reuters

HONG KONG/GUANGZHOU -- Asian suppliers for Huawei Technologies have suffered heavy losses in their share prices since the U.S. announced a virtual export ban against the Chinese telecom manufacturer two weeks ago.

Q Technology, a Chinese company that makes camera components for Huawei phones, has fallen more than 50% on the Hong Kong exchange from a recent year-to-date high. When reporters asked Chairman He Ningning last week about the business outlook, he struggled to put the best spin on the situation.

"Huawei is one of our key customers," the chairman said. "We have to wait for accurate information from Huawei" before any predictions can be made.

The company's shares also have tumbled 27.4% between May 15 -- when the U.S. Commerce Department said it would put Huawei on its so-called Entity List -- and Wednesday's close.

Other major suppliers have fared similarly. BYD Electronic, which is strong in smartphone batteries, skidded 19.6% during that period. Hon Hai Precision Industry, the Taiwanese contract assembler known as Foxconn, is off by 7.2%. South Korean chipmaker SK Hynix, which derives 5% to 10% of its sales from Huawei -- mostly in smartphone chips -- is down 11.3%.

While 36% of Huawei's key suppliers are based in the U.S., roughly 60% hail from Asia. Mainland China accounts for 27% of the suppliers, while Japan is home to 12% and Taiwan 11%. The Foxconn group alone is the source of approximately 10% of Huawei's procurement by value.

Investors are distancing themselves from these stocks due to the prospect that Huawei, the world's second-biggest producer of smartphones, will curtail its shipments totaling roughly 200 million units annually. Strategy Analytics, a U.S. research firm, expects shipments to drop 24% this year under the U.S. blacklisting, and 23% next year -- meaning that Huawei would ship about 100 million fewer smartphones over two years.

The stock for Sunny Optical Technology plunged 22.9% during the past two weeks. The Chinese company generates a fifth of its sales from lenses and other components supplied to Huawei.

"Dependency on Huawei is high, and [Sunny Optical] is exposed to the impact," said Rex Wu, a Hong Kong-based analyst with Jefferies.

Flex, a contract assembler based in Singapore, suspended production at a factory in Zhuhai, China.

Foxconn Chairman Terry Gou told Taiwanese reporters Monday that the company is "prepared for battle" amid the trade frictions. Several other companies on the island have extensive business relationships with Huawei.

Shares of Taiwan Semiconductor Manufacturing Co. fell 7.8% during the past two weeks. TSMC spokesperson Elizabeth Sun warned last week of a possible "disruption" in the semiconductor industry. FIH Mobile, a Foxconn subsidiary that makes smartphones, stumbled 14.3% during the same period.

Asian markets are also on the lookout for further additions to Washington's Entity List. Candidates reportedly include security camera manufacturers Hangzhou Hikvision Digital Technology and Zhejiang Dahua Technology. Both stocks have slid more than 10% over the two weeks.

"Hikvision makes state-of-the-art surveillance cameras that use U.S. semiconductors as indispensable components, which creates a business risk," said Wang Ying of Moody's Investors Service.

Some stocks, however, are benefiting from Huawei's woes. Chinese President Xi Jinping recently visited JL Mag Rare-Earth, a major producer of magnetic materials, and the company's share price more than doubled over the two-week period. Speculation is growing that Beijing will use the threat of withholding rare-earth exports as a bargaining chip in trade negotiations, and the market apparently expects the government to support the company.

Samsung Electronics is a Huawei supplier as well, but the stock is down only 1.8% over the past two weeks. Even if its sales to Huawei dwindle, the South Korean company can divert the components to its own smartphones, said a source at a Nomura Securities office in South Korea. Morgan Stanley has said that if Huawei's share in the smartphone market shrinks, Samsung will be best positioned to reap the rewards.

Nikkei staff writers Kensaku Ihara in Taipei and Kenichi Yamada in Seoul contributed to the report.

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