Shares of Acacia Communications (ACIA) and Oclaro (OCLR), both suppliers to ZTE Corp. (ZTCOY), are on the rise after President Donald Trump tweeted that he was working to give the Chinese tech company a “way to get back into business.” ZTE had recently been blocked from buying U.S. components due to sanctions violations.
TRUMP SEEKS TO HELP ZTE: Over the weekend, President Donald Trump said in a tweet that, “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!” This comes after the U.S. Department of Commerce recently banned U.S. companies from selling components to Chinese telecom equipment maker ZTE for seven years for violating the terms of a sanctions violation case. According to a report by The Wall Street Journal on Sunday, ZTE told U.S. authorities that failure to fully comply with a settlement agreement resolving sanctions-busting charges was due to faults in the company's internal controls, not deception.
ZTE SANCTION RELIEF MAY BENEFIT SEMI SALES: In a research note to investors, Bank of America Merrill Lynch analyst Vivek Arya said that President Trump's tweet appears to offer some sanctions relief for China's ZTE. While not completely settled, any U.S. trade resolution with ZTE could signal less potential risk of confrontation with China's other vendor Huawei, he contended, adding that thawing of trade tensions could be a positive for Skyworks (SWKS), Integrated Device (IDTI), Qorvo (QRVO), Xilinx (XLNX), and Broadcom (AVGO). Additionally, Arya argued that it could also help in clearing the path for some recent announced deals that are currently undergoing China regulatory review, such as between NXP Semiconductors (NXPI) and Qualcomm (QCOM), Cavium (CAVM) and Marvell Technology (MRVL) and Microsemi (MSCC) and Microchip Technology (MCHP).
WHAT'S NOTABLE: China's Ministry of Commerce has restarted its review of Qualcomm's application to acquire NXP Semiconductors after previously shelving the review due to growing trade tensions with the U.S., according to Bloomberg, citing people familiar with the matter. Officials were asked to speed up the review of the purchase and Qualcomm's proposed remedies to protect local companies, which came after Chinese companies expressed concern that the combined entity would expand Qualcomm's patent licensing business into areas like mobile payments and autonomous driving.
