Growing Uncertainty over China’s Economy to Negatively Impact U.S. Chip-making Firms

Published Date : Jul 08, 2015

China is well-known for its chip-manufacturing industry, which has boomed in the past decade. However, the volatile markets coupled with the economic unpredictability in China is expected to pose a threat to many top chipmakers, for example Qualcomm Incorporated which derives a massive portion of its sales from the second largest economy in the world.

One of the leading firm in consumer electronics, Apple could also be affected by this economic uncertainty, as approximately 17 per cent of the firm’s overall revenue past year was derived from China. Also, the most recent quarter showed that the sale of iPhones in China was more than in the United States for the first time. 

However, the gradual slowdown of China’s economic growth coupled with the weakening demand for mobile devices can be particularly tough for the chip making firms to handle. Beijing has already taken steps to revive its shares after a 30 per cent slump in its stock market which occurred during mid-June, this has raised several concerns among investors regarding the stability of China’s economy. The chip-making companies that will be maximum affected by this economic uncertainty is Qualcomm and Broadcom. These companies rely on China for around 50 per cent and around 24 per cent of their overall revenue generation.

Furthermore, this stumble observed in China’s stock market has occurred as the chip sector is already witnessing a tough year. Nevertheless, this situation might not be as dire as the revenue numbers show. For example, the firm Cirrus Logic that supplies integrated circuits for automotive and audio apps exhibited around 80 per cent of its revenue generation from the China market previous year. The firm stated that these figures show where there products are made and not the end market where it sells its products. Also, the company mentioned that it did not presently observe any negative impact on its business.