Dividends and Huawei likely to face tough year as US sanctions cut off access to key semi-conductor suppliers

For years we heard the most important consideration for a company was either access to China or the competition from China. If a company had access to China, its revenues would rise because of the large market which is China and its billion people. If competition from China was coming into your product or services, watch out because revenues could fall as they had lower prices. If you think about your smartphone and some of the many things it can do and does do, the makers of the technology are in China and Taiwan and Japan. In the technology world, 5G is coming or is here and you will have to update to take advantage.

Anything from China, there are reports and some are likely true that some of the information from Chinese technology products the information goes back to China to do something. We know in China that the state monitors its people, think the book 1984, some of that goes on today. The biggest smartphone maker in the world is a Chinese company called Huawei. It is highly likely they are the biggest because they have government support or co-operatives with the government.

Huawei also makes the components for the 5G system to work and governments around the world are not quite positive if Huawei should be the supplier or not. A number of European companies have gone with the competition of Huawei and the US imposed sanctions on access to semi-conductors.

In an article by David Kirton of Reuters, the US has banned US firms from selling essential US technology. In August, the ban was extended to foreign firms with US business, reaching chief suppliers such as Taiwan Semiconductor Manufacturing Co (TSMC). Among TSMC’s clients is Apple.

The ban on TSMC hurts Huawei because they use advanced chips for its handsets, 5G network base stations, servers, cloud computing and artificial intelligence products said Paul Triolo, head of global tech policy at Eurasia Group. Stockpiles only last so long.

Dan Wang, said Huawei will feel the impact most acutely in its consumer business which brought in 54% of its revenue in 2019.

In November, Huawei spun off budget smartphone line Honor in a sale which allows the brand to regain access to chips. The company may do the same for its premium brands.

Does President Biden’s policies on China?

Jefferies analyst Edison Lee said the company has enough chips to make about 500,000 5G base stations.

Linking to dividend paying stocks, analysts at various investment houses examine the strategy of every dividend paying company. If a company falls into disagree with a government around the world, some of them can take actions. A government has to have a tremendous amount of clout to stop sales of foreign companies doing business with US and China, one wonders what considerations were given to companies such as TSMC to pick one over the other. In any case, in a world where companies operate across many borders, they are prone to “chosen” by a government somewhere and need lobbyists to watch over their products and services. Ideally a dividend paying company has the ability to have retainers to help them.

There are more questions than answers, till the next time – to raising questions.

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