1. China economic uncertainty a potential risk for U.S. chipmakers like Qualcomm Inc

China economic uncertainty a potential risk for U.S. chipmakers like Qualcomm Inc

Tumbling markets and economic uncertainty in China pose a risk to major chipmakers such as Qualcomm Inc that derive a big portion of their sales from the world's second-largest economy.

By: | Published: July 7, 2015 8:58 AM

Tumbling markets and economic uncertainty in China pose a risk to major chipmakers such as Qualcomm Inc that derive a big portion of their sales from the world’s second-largest economy.

Consumer electronics giant Apple Inc could also be vulnerable – 17 percent of the company’s overall revenue last fiscal year came from China, and in the most recent quarter it sold more iPhones in the country than in the United States for the first time.

But the slowing pace of China’s economic growth – on top of already weakening demand for mobile devices – could deliver a particularly tough blow to chipmakers, analysts said.

“When you have waning demand hitting at the same time (as the stock market uncertainty), it just makes that industry that much more difficult,” said Christopher Rolland, a senior equity analyst at FBR Capital Markets & Co.

Beijing took steps during the weekend to revive shares following a 30 percent slide in its stock market since mid-June, which raised investors’ concerns about the stability of the Chinese economy.

Among the companies with the biggest exposure to China are Qualcomm and fellow chipmaker Broadcom Corp, which depend on China for 50 percent and 24 percent of their overall revenue, respectively.

Qualcomm declined to comment ahead of its earnings announcement, and a Broadcom representative was not immediately available to comment. Apple declined to comment.

China’s stock market stumble comes as the chip sector was already facing a tough year. Research firm Gartner said it is downgrading its assessment of worldwide semiconductor sales, which it had initially expected to reach $354 billion this year, a 4 percent increase from 2014, although it has not yet released its new assessment.

However, the situation may not be as dire as the revenue numbers indicate. Exposure to China may be smaller than the companies’ reports suggest, according to Cody Acree, an analyst for Ascendiant Capital Markets.

For instance, Cirrus Logic Inc, which supplies integrated circuits for audio and automotive applications, reports that it made nearly 80 percent of its revenue in China last year.

But the company said the number represents where its products are manufactured and not necessarily the end-market where products are sold. The company said it did not currently see any impact on its business.

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