This is the best news for the tech sector, says analyst Daniel Ives, since the Broadcom/Qualcomm “Fort Sumter” moment.
From a note to clients that landed on my desktop Sunday:
Late last night the US and China reached an agreement to halt additional tariffs in a deal that will remove a near-term overhang on tech stocks caught in the cross fire with Apple and the semiconductor space front and center…
Ever since the “Fort Sumter” moment when President Trump blocked Broadcom’s $117 billion bid for Qualcomm earlier this year citing national security concerns around 5G the technology sector and investors have been wondering what would be the next poker move between the two countries around national security, 5G competition, and broader cyber risks that have been heightened on worries/media reports around stepped up hacking from China and related hacking groups on US technology companies including Amazon (AWS) and Apple among others…
While it’s an initial reprieve, we would view this news out of the G-20 as a near-term positive catalyst for tech stocks going into year-end given the fear around the 25% tariff hitting on Jan 1 is now removed (for now) with Apple in the spotlight.
Apple thoughts: Given the company’s high exposure to China from both a demand and supply chain perspective with its flagship Foxconn factory front and center, a potential 10% tariff or draconian 25% tariff on iPhones and related components would have been a tough gut punch to absorb for Cupertino (and its investors). Based on its exposed COGS [cost of good sold] and China exposure, a 10% tariff or higher as threatened by the Trump administration this past week could have potentially reduced Apple’s FY19 EPS by between 3% and 7% based on our initial analysis if enacted.
Maintains Outperform rating and $275 price target.
My take: Fort Sumter? I thought we were talking about trade war, not civil war!
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