China has been notorious for chewing up and spitting out foreign firms over the years, but its recent move to ban U.S. tech from its companies could prove even more costly.
Jan. 3, 2020
Beijing has recently ordered all the public institutions and government offices to remove all foreign computer equipment and software within a time frame of three years. The decision was made after months of rumbling between the U.S. and China over technology. We have previously seen the U.S. making life harder for Chinese telecom companies like Huawei and ZTE.
This is a huge step by the Chinese leaders who are trying to decouple the Chinese tech industry from international brands.
The initiative aims to replace 30% of the stock in the first year (2020), 50% in the next year (2021), followed by the remaining 20% in 2022. Various investment firms estimated around 20 million pieces of computer equipment in government bodies, hospitals, schools, etc. in China will be replaced.
The Following three industries will have the most impact:
1. Software – Microsoft (NASDAQ: MSFT) is going to be the hardest hit by this move. Windows has already become infamous across China and Microsoft previously tried to resolve this by offering a specific windows government edition, tailor-made for the Beijing government. But, China wants to take this one step further by operating on domestically made operating systems, most of which are open source (Linux) such as Kylin OS. Experts have also seen a move away from Microsoft Office to domestic alternatives like Kingsoft office, which creates something really similar and is called WPS. Apple (NASDAQ: AAPL) is not believed to be not affected much by this move, as not much of the government organizations are believed to use apple computers and are not provided with smartphones either.
2. Hardware – U.S. PC and accessories manufacturers like Dell (NYSE: DELL) & HP (NYSE: HPQ) are believed to be impacted the most from this as most of the hardware will be replaced by local Chinese giants like Lenovo, which is already very dominant in China. Other brands like ASUS, Acer, Haier, etc. are some growing Chinese brands and are going to benefit from this move.
3. Semiconductors – The Trade-war has brought in a fair amount of difficulty and revenue loss for chipmakers. This is because China is the biggest buyer of chips which brings in a lot of business for American semiconductor companies like NVIDIA (NASDAQ: NVDA), Qualcomm (NASDAQ: QCOM), Intel (NASDAQ: INTC), AMD (NASDAQ: AMD), etc. China still imports massive quantities for chips as Chinese companies aren’t able to deliver comparable quality for self-made chips. Semiconductors are an important part of a computer as it uses Central Processing Units (CPU) manufactured by Intel/AMD and Graphic processing units (GPU) by NVIDIA. China is pushing itself to be self-reliant in the chip industry for the long term.
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