One tweet had broad repercussions across the tech world on Monday.
President Donald Trump this weekend tweeted that he’d be working with China to find a way for Chinese smartphone maker ZTE Corp. 0763, -1.92% to restart its operations. The U.S. banned domestic companies from selling components to ZTE last month, arguing that ZTE didn’t adequately reprimand employees for violating prior Iran sanctions, and the ban prompted the company to shut down its major operations last week.
Though ZTE is a Chinese company, it competes against U.S. players and relies on American companies for technology. Trump admitted as much in a follow-up tweet on Monday afternoon, writing that ZTE “buys a big percentage of individual parts from U.S. companies.”
Here’s a look at the tech subsectors that moved based on Trump’s openness to a reversal of the ban.
Optical suppliers
When the U.S. first announced that domestic companies would be prohibited from supplying components to ZTE for seven years, optical shares sold off. Acacia Communications Inc. ACIA, +8.73% which generated 30% of its revenue from ZTE last year, was been among the biggest losers.
The reversal of sentiment from Trump helped undo some of that damage. Acacia Communications Inc. stock rose 8.7% Monday, though shares are still trading below their mid-April levels. Other optical stocks gained as well, including Finisar Corp. FNSR, +1.03% Lumentum Holdings Inc. FNSR, +1.03% Oclaro Inc. OCLR, +2.92% and NeoPhotonics Corp. NPTN, +4.64%
The optical names have different levels of exposure to ZTE, and some, like Oclaro and Lumentum, might have ultimately gained from a ban on sales to ZTE. Nonetheless, their stocks fell on the day the ban was announced and thus rose on Monday amid the broader wave of optimism toward the category.
In addition to making smartphones, ZTE also has a networking business, for which it relies on supplies from the U.S. The company is thought to be at a major disadvantage technologically if it can’t access U.S.-made components.
5G and networking
The Trump administration has a strong interest in 5G, though there are a lot of moving parts.
5G is the next-generation wireless standard that promises to be faster than the current 4G. It’s expected to help better support autonomous-driving and virtual-reality technologies. Both ZTE and San Diego-based Qualcomm Inc. QCOM, +2.73% are trying to advance 5G technology, along with other telecom-focused companies like China’s Huawei.
The U.S. government has looked for ways to advance domestic companies in the race to deploy 5G. The government blocked Broadcom Inc.’s AVGO, +0.57% hostile takeover of Qualcomm by arguing that the deal would make it harder for the U.S. to compete against China in 5G. A Treasury official specifically cited Huawei in his argument, but ZTE is another major Chinese player.
A stronger ZTE, therefore, doesn’t necessarily help give the U.S. a lead in 5G. But after Trump tweeted about getting ZTE back up and running, Bloomberg reported that China would be restarting its review of Qualcomm’s proposed acquisition of NXP Semiconductors NV NXPI, +11.85% Qualcomm is looking for ways to win in 5G as well. (ZTE and Qualcomm have another link, as ZTE relies on the company for mobile-phone chips.)
Qualcomm shares gained 3.2% in Monday trading, while NXPI shares rocketed up 13%.
Chinese internet stocks
Shares of Chinese internet names also rose during Monday’s session, as Trump’s willingness to work with China on the ZTE issue signaled a potential relaxation of trade-war tensions.
The U.S. and China are reportedly considering a deal that would save ZTE from sanctions and also remove billions of dollars in tariffs on U.S. agricultural products sold in China, according to The Wall Street Journal. The possibility of a trade war has weighed on the shares of major Chinese internet companies, which touch on many aspects of commerce and life.
Trump said in his Monday follow-up tweet that the efforts with ZTE were “also reflective of the larger trade deal we are negotiating with China.”
Shares of Alibaba Group Holding Ltd. BABA, +2.20% Baidu Inc. BIDU, +0.87% JD.com Inc. JD, +0.60% iQiyi Inc. IQ, +6.38% and Sina Corp. SINA, +1.32% rose in Monday trading, outpacing gains in the S&P 500 SPX, +0.09%
