Huawei supplier shares jump amid China chip self-sufficiency push
Some stocks rise more than 400% since rollout of new 5G-capable phone
TAIPEI/HONG KONG -- Little-known tech suppliers have become a surprise hit on the Chinese stock market after Huawei Technologies defied a U.S. clampdown to release its first 5G-capable smartphone in years.
Electronics, component and equipment suppliers to the national tech champion have seen their shares rise sharply -- some more than 400% -- since the Mate 60 Pro went on sale in late August. Other issues got a boost after Huawei introduced tablets, smart wearables and displays, automotive platforms and AI computing solutions in September.
Investors are betting not only on Huawei's comeback in the smartphone market but also on China's ambitions to build a self-reliant tech supply chain. The uptick, however, comes amid a protracted downturn in the broader tech industry that analysts say may still not have run its course.
Dongguan Chitwing Tech, which indirectly supplies precision molds and structural components to Huawei, saw its share price surge 420% between Aug. 28, the day before the Mate 60 Pro release, and Sept. 28, the day the Chinese market closed for an extended holiday. The rise was so sharp that the Shenzhen Stock Exchange told the company to issue a statement to investors explaining that Huawei only contributed a limited amount to its revenue: 3.7% in the first half of this year.
Other winners include Hwa Create, a major satellite communication component provider to Huawei, whose shares jumped more than 143% over the same period. The Mate 60 Pro can make satellite calls.
Shares of Shenzhen Phoenix Telecom Technology, a key supplier of routers and switches for Huawei, rose more than 83%, while Seres Group, a partner in Huawei's automotive platform business, jumped more than 65%.
Sunwoda, a major supplier of batteries for Huawei smartphones, is up more than 24% since the end of August. Antenna and radio frequency parts maker Shenzhen Sunway Communication's shares also jumped 21% from a month ago.
Sunwoda and Sunway are also Apple suppliers.
Ofilm Group, a touch and camera lens module provider has seen its stock price rise about 22% since Aug 28. This company was once an Apple supplier, too, but its business took a heavy hit when the U.S. added it to the Entity List in 2021, alleging links with human rights abuses of China's Uyghur Muslim minority.
China's top chipmaker, Semiconductor Manufacturing International Co. (SMIC), also got a boost, with its Hong Kong-listed shares rising nearly 8% since Aug 28, as of Oct 5. Huawei has been working with SMIC to restore its 5G mobile chip production, Nikkei reported earlier. In the same period, shares of Taiwan Semiconductor Manufacturing Co., SMIC's biggest foreign rival, declined about 4% amid a slow market recovery and lackluster electronics demand.
While the Huawei bump is a welcome bit of sunshine, however, many smartphone-related component suppliers have been in a slump since 2021. And despite hopes that ending China's strict COVID lockdown measures last December would boost consumption, the country's smartphone market declined in the first half of 2023.
Sunwanda's share price was still less than a third of its peak in late 2021, while Ofilm's were less than a third as high as they were before the pandemic and before Apple cut ties with the company.
Jeff Pu, managing director of tech research with Haitou Securities, said demand for Huawei's handsets still far exceeds supply. "We do find Huawei continues to increase orders at its multiple electronics component suppliers. We expect such a trend of it making a comeback in its smartphone business locally will continue into next year. That does help the growing prospects of some of its key suppliers.
"However, a Huawei comeback could impact the sales of other handset makers, including Apple, Oppo, Honor, Vivo and Xiaomi, in China," Pu said.
Edison Lee, an analyst at Jefferies, estimated that Huawei's capacity to make 7-nanometer chips will continue to grow, from about 33 million units in 2024 to 58 million in 2025, and 72 million in 2026. That will help Huawei's phones regain market share from Apple's iPhone in China, the analyst said.
"Huawei's potential cannibalization against the iPhone will be small in 2023, since we forecast only 5 million to 6 million shipments by Huawei, but its shipments will expand over time," Lee said.
But Mike Leung, an investment manager with Hong Kong's Wocom Securities, warns that the rally might not last.
"It is believed that the stock price will adjust and fall later because the overall investment sentiment in the market is poor," he said, "particularly given that there are rumors that the U.S. will quickly review the effectiveness of the sanctions and impose further restrictions and technology transfers on semiconductor production facilities in response to the success of the Mate 60 Pro."