US's Huawei ban amplifies downside risk on Asian semiconductor cycle

Tensions to Weaken Recovery of Semiconductor Cycle
MAY 21, 2019 - 5:30 PM

ASEAN's semiconductor exports to China, particularly Malaysia's, could be directly hurt, following the US's Huawei ban

With China the biggest buyer for Asian semiconductor exporters (51 per cent in 2017), countries like South Korea (69 per cent), Taiwan (56 per cent), Vietnam (51 per cent), Japan (43 per cent) and Malaysia (39 per cent) are dependent on China and Hong Kong's import demand. 

Following the announcement that the US government banned Huawei from purchase of the US's products without the government's approval, reports started surfacing that Google, Intel, Qualcomm, Broadcom, Infineon and Micron will stop shipment to Huawei. 

On May 20, the US government allowed 90-day exemptions only for existing Huawei mobile phone users and rural broadband networks. 

Malaysia is most likely to be the most directly hurt given that US chip makers such as Micron conduct testing and assembly in Malaysia before shipping to China said Citi's equity research team in their Asia Economics Flash on Tuesday. 

The team estimated that Micron has low double-digit exposure to Huawei. 

In its economic flash, Citi noted that the rebound of the Citi Asia Semiconductor Leading Index (3MMA) from early January has significantly stalled in May. During the third week of May, its weekly change fell to the lowest levels since December 2018. 

"We think the leading index could deteriorate if the recent equity market sell-off deepens as tensions on trade talks and the Huawei ban persist, posing double-dip risks," they said in their report.