- U.S. tech earnings growth is vulnerable to continued tensions with China.
- As the Chinese government wields influence in the region, U.S. tech companies will compete for a smaller market share.
- Separation with China is underway, but the process is likely to be long, officials said.
Major U.S. tech companies have almost completed their financial results, and their results send a clear message: “China's impact on our business results cannot be ignored.''
Tesla's sales fell 4% in the first quarter, feeling the effects of slowing demand in China. Meanwhile, 18% of Apple's sales come from China, highlighting the crucial role China plays in its profitability.
China is even more important to U.S. semiconductor companies' business than their home base, according to S&P Global data.
Investors have grown increasingly wary of China's involvement in boosting the earnings and therefore stock prices of some of the largest U.S. tech companies, and experts say superpower competition will shape the U.S. tech industry in the coming years. is expected to be re-formed.
geopolitical tensions
Abishur Prakash, founder of advisory firm The Geopolitical Business, told Business Insider that U.S. tech companies that ignore geopolitical tensions with China risk serious setbacks to their portfolios. Told.
“The train has left the station in terms of rethinking China,” he said. “It's becoming clear that over a long enough timeline, everyone will have to choose a side.”
Regarding Tesla's earnings, Prakash said Elon Musk's electric car company could have done better if it had taken more account of geopolitical realities.
“Tesla thought it could produce in China and export Chinese-made cars to the world. But now, from India to Europe, many people don't want Chinese-made EVs,” he said. Ta.
He added: “Big technology companies established themselves in China when the geopolitical landscape was very different. But now, by expanding into China and exporting from China, companies are “It will be exposed to 'geopolitical crosshairs.'
Macro headwinds facing China's economy could further exacerbate divisions. Analysts highlight China's weak currency as major economic challenges, along with a weak real estate sector and weak consumer spending.
Kelvin Wong, senior market analyst at Oanda, told BI that devaluing the Chinese yuan to boost export growth amid weak domestic demand has led to other major exporters such as South Korea, Taiwan and even Japan He said the country's currency is also likely to depreciate.
“These countries are considered 'friendlier countries' in the U.S. onshoring/decoupling strategic plan, which could cause a negative feedback loop on the stock prices of large U.S. tech companies,” he said. “There is,” he said.
”2 Technology Stack Divide”
In the fast-growing field of artificial intelligence, U.S. and Chinese “retaliatory” regulations on key technologies will gradually have a ripple effect on U.S. tech companies, experts said.
“Our view is that we are rapidly approaching the so-called 'tech stack divide,' meaning the US and China are effectively walling off or ring-fencing each other's technology stacks. “We're locking ourselves in,” Jay Perosky said. , the founder of TPW Advisory told BI.
Perosky said that despite the US tightening sanctions against China in the high-tech sector, Beijing could eventually exert influence in Southeast Asia, including Vietnam, Malaysia and Indonesia. Countries will increasingly be influenced by China's high-tech advantages from Chinese companies. Compared to its American equivalent, it is cheaper and larger in size.
“Southeast Asia is the fastest growing region in the world, so U.S. tech companies will essentially be competing for a smaller share of the global growth pie,” he said.
Decoupling in progress
Unlike before, U.S. tech companies now have a new strategy to “keep the U.S. happy, maintain business in China, and explore new markets to offset 'China losses,'” Prakash said. He said he had it.
“Look at how NVIDIA and AMD are developing custom chips specifically for the Chinese market to comply with sanctions,” he said.
Nvidia hasn't reported earnings yet, but expectations are high. But Prakash said the company faces a “complex situation” in China.
“On the one hand, the U.S. government continues to turn away what Nvidia can sell to China. On the other hand, China uses formal and unofficial channels to scoop up Nvidia chips.” said.
Experts say China will gradually stop contributing to the bottom lines of America's biggest tech companies.
“Looking ahead, it appears that the US-China tech war is still going on, where friendly onshoring and decoupling of technology supply chains have gained momentum since COVID-19,” Wong said. Stated.
