WASHINGTON. US traders were gobsmacked at Monday’s opening bell when they glimpsed the day’s top business headline. CNBC and other sites brandished the stunning news that Google (aka, Alphabet, trading symbol GOOGL) was suspending its business activities with Chinese cellphone behemoth Huawei. Specifically, the company is cutting Huawei off from most aspects of Google Android OS tech, the only smartphone OS the Chinese company currently uses.
This action, stemming from an increasingly hot trade war between China and the US, threw US stock markets into turmoil. It began with a quick, roughly 200-point plunge in the Dow when markets opened at 9:30 a.m. ET.
Google Android OS cuts off Huawei, in move stemming from US trade policy
CNBC’s banner headline Monday morning anticipated the early trading action quite nicely.
Google cuts ties with Huawei. That may be a ‘kill switch’
for the Chinese firm’s global smartphone ambition
Key US chip manufacturers like Intel (INTC), Qualcomm (QCOM), Xilinx (XLNX) and Broadcom (AVCO) quickly joined the Google Android exit parade. Others will likely follow. And even countries in the currently US-hostile EU, feeling the pressure, may join the crowd. Unsurprisingly, the decline on the tech-heavy NASDAQ substantially exceeded that of the Dow. The NAZZ opened down close to a whopping 2 percent.
Huawei in trouble with Google and other US techs
CNBC noted the potentially dire consequences of these moves for Huawei. This morning’s report by Arjun Kharpaul said this “could deal a huge blow to the Chinese tech giant’s ambitions to become the top player in smartphones globally.” The loss of Google Android tech would be particularly damaging, at least in the short run.
Kharpaul provided relevant details helpful to armchair and home office investors who aren’t always up on the latest communications arcana. Such as the Google Android OS and ecosystem as well as Apple’s iOS.
“The U.S. tech conglomerate has suspended business activity with Huawei that involves the transfer of hardware, software and key technical services. Google made the move in order to comply with Washington’s decision to put Huawei on the so-called “Entity List,” meaning American firms need to get a license to sell products to the Chinese firm.
“It means Huawei can no longer license Google’s proprietary Android operating system and other services that it offers. Instead, Huawei is now only able to use a public version of Google’s operating system through the Android Open Source Project. It means future Huawei phones will not have the Google services that users have come to expect on Android devices.
“‘We are complying with the order and reviewing the implications,’ a Google spokesperson said on Monday. ‘For users of our services, Google Play and the security protections from Google Play Protect will continue to function on existing Huawei devices.’”
What’s at stake for Huawei?
The Tyler Twins over at ZeroHedge have considerably more on this story, providing connective tissues explaining why Google and others are taking action against Huawei.
“The Commerce Department officially blacklisted Huawei and dozens of its affiliates Friday afternoon, and one business day later, we’re starting to see some major Western companies severing their business ties with Huawei, a trend that could have seriously dire consequences for the Chinese telecoms giant.”
According to ZH, Huawei is already bravely promising to build “its own ecosystem” to replace what might lose, i.e., the Google Android OS. That’s probably no idle boast. The increasingly aggressive and intransigent Chi-coms will likely back the firm with an unlimited R&D budget to fight those running American Capitalist Dogs.
Further, there are some loopholes involved in these tech company moves. The fine print gives Huawei at least a little breathing space.
The Trump Administration and US trade negotiators have had enough with Chinese intransigence
But what’s clear is that the Trump Administration was furious last week when Chinese negotiators blindsided US negotiators. According to numerous sources, they returned a blue-penciled draft agreement that backtracked on nearly every significant US demand we thought they’d already agreed to. As we’ve noted here before, negotiating with Communist governments is ultimately futile, since they’ll
- either refuse to agree to anything significant; or
- agree to everything, smile, sign, and immediately begin to ignore what they’d agreed to.
Here’s the ZH wrap, at least at this moment. (Bold text via ZH.)
“Beijing has maintained its aggressive posture, with its Ministry of Foreign Affairs warning in response to news of the Google ban that China would do what it needed to do to protect its companies’ ‘legitimate rights,’ and also hinted at legal actions it might take. Over the weekend, Beijing compared the trade skirmish with its actions in the Korean War, about as clear a sign as any that we’re in for a protracted conflict.
“Whatever happens, it looks like the showdown over Huawei has eclipsed the broader trade-war narrative. So much for the Huawei crackdown being a ‘separate issue’ from the trade talks, like Trump officials had previously insisted.
“Bottom line: If we don’t get a deal by the end of June, this trade war is going to really heat up.”
Anticipating trouble, Huawei built up a 3-month backlog of US hardware
Huawei has reportedly built up a backlog of hardware components. This would allow them to continue manufacturing smartphones for roughly three more months without running into trouble. After then, who knows? Will the loss of major access to Google Android tech finally pressure the Chinese government to get serious about agreeing to a US trade deal? Sure it will. They might just ink the agreement that the US wants. And then violate it across the boards. Just like Communist governments always do.
Potential US tech casualties: Apple, US chip manufacturers
Potential US tech casualties and a wild and crazy NASDAQ
Speaking of smartphone companies. One US company that’s likely in the Chi-com’s retaliatory sights Monday morning: Apple. That company was hammered for a massive 9-point loss at the opening bell. It’s since recovered a bit, trading down nearly 5 points from Friday’s close as of 10:30 a.m. ET for a current loss of just under 5 percent. Shares currently stand at around $184.10. But, as with most US stocks today, don’t expect Apple shares to stand still. Other US tech companies, particularly the chipmakers, could also be in for a bumpy ride.
The one thing we can count on, though: Chinese intransigence. It’s a given. They don’t like to lose. And they don’t like to lose face even more. But they set themselves up for this setback by imagining Trump would cave, just like his predecessors. Wrong answer.
The Dow is currently off only 33 points more or less, while the NASDAQ has recovered roughly 1 percent of its earlier 2 percent loss. But the Dow and other major averages rallied nicely all day Friday before getting sacked for a loss at the closing bell.
It’s the wild west out there. Price earnings ratios and charts no longer matter. Eyeball-seizing headlines do. It’s no way to invest. But it’s what we’ve got right now.
Stay tuned. It could be another wild week. But then, what else is new?
— Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.