In May, the Trump administration escalated its ongoing trade war with China in two ways. One, it issued a new 25 percent tariff on imported Chinese electronics. Two, the U.S. Department of Commerce later forbade American firms from doing business with Chinese conglomerate Huawei. In spite of the corporation’s repeated denials, the federal government insists the company is a threat to U.S. national security.
While it was clear Washington’s actions would hurt the U.S. electronics sector, the exact impact of the moves was unclear. However, things changed last week when Broadcom lowered its 2019 financial forecasts by $2 billion and named the Sino-American trade conflict as the cause.
The $2 Billion Revision
On June 13, Broadcom CEO Hock Tan made a substantial revision to the firm’s revenue predictions during the 2019 Q2 earnings call. The executive first noted the company’s growth had slowed down due to “continued geopolitical uncertainties.” He went on to say the current environment caused the corporation’s most significant clients to reduce their ordering.
As a result, Tan revised Broadcom’s 2019 earnings forecast down from $24.5 billion to $22.5 billion. The CEO then explicitly stated the Huawei blacklisting had induced a sense of anxiety among the company’s manufacturing clients. In the fiscal year ending 2018, 4.3 percent of the chipmaker’s income came from Huawei.
Industry Experts Offer Bleak Analysis
Following its revenue revision, Broadcom’s market share fell by 6 percent on June 14. Furthermore, on Monday, Zacks Equity Research advised traders to dump the company’s stock. Concerned about its revised fiscal outlook, the group pointed to the manufacturer’s underperformance in the second quarter as a reason to sell. While the market analysis company predicted the firm would take in $5.663 billion in Q2 2019, its reported earnings were only $5.517 billion.
While acknowledging the predicted 2020 revival of the semiconductor sector, the firm ultimately concluded investors should ditch their Broadcom shares for the time being.
Market Realist also cast a bleak outlook on the 50-year-old chipmaker’s future. The site noted one of the bright spots of Broadcom’s second-quarter earnings call revealed a severe vulnerability.
In its most recent Securities and Exchange Commission filing, the company noted it inked a new agreement with Apple. As part of the deal, the semiconductor corporation will supply the iPhone maker with modules and radiofrequency components.
The site argues that while the new arrangement will provide Broadcom with much-needed revenue, it won’t last long. Indeed, the California-based smartphone device company recently made overtures to purchase Intel’s 5G modem business. That move, combined with the company’s recent legal struggles with Qualcomm, indicates Apple wants to bring its component fabrication in-house.
As such, Broadcom’s new Apple agreement is less a safe harbor and more a rapidly deflating life preserver.