Chipmakers Surge as Trade Truce Removes Key Overhang

(Bloomberg) -- Shares of semiconductor companies and other suppliers to Huawei Technologies Co. spiked on Monday, after President Donald Trump said he would delay trade restrictions against the China-based company, suggesting an easing to one of the biggest headwinds facing the group.

The Philadelphia Semiconductor Index jumped as much as 5%, putting the industry benchmark on track for its highest close since early May, as well as its fourth straight positive session. While the index is still about 4.3% below record levels, it has surged more than 17% off a low from late May.

Among notable gainers, Western Digital Corp. spiked as much as 7.4% in what was set to be its 10th positive session, its longest rally since a 10-day gain that ended in March 2018. WDC, which gets about 4.3% of its revenue from Huawei, according to supply chain data compiled by Bloomberg, has surged nearly 41% over the 10-day rally.

Micron Technology jumped 8.1%. The company gets 13% of its revenue from Huawei.

Chipmakers were broadly higher across the globe, supported after the U.S. and China declared a truce in their trade war over the weekend. The industry has been highly correlated to this issue, given that China is both a major market for companies, as well as a critical part of their supply chains.

Separately, Lam Research was up 3%, and U.S.-listed shares of ASML Holding NV rose 3.6%. Applied Materials rose 5.9%; the company earlier announced it would buy Kokusai Electric from KKR & Co. in a deal worth about $2.2 billion.

RBC Capital Markets analyst Mitch Steves wrote that he viewed the Huawei announcement “as a large positive for the semiconductor industry even though it is unclear if the lift will be permanent in nature.”

He added that the implications of the announcement were “unclear for Nvidia, AMD and Analog Devices given that their products represent potential security risks.” Nevertheless, these names were were also among the day's gainers.

Nvidia rose 5.9%, Advanced Micro Devices climbed 5.5%, and Analog Devices gained 4.7%.

Among other major Huawei suppliers, NeoPhotonics Corp. -- which gets nearly half its revenue from Huawei -- spiked nearly 22%. Lumentum Holdings jumped 9%; more than 18% of its revenue is derived from Huawei.

Semiconductor stocks have performed well throughout the first half of 2019, despite waning optimism that they could see improvements in such key issues as demand, pricing and inventory levels over the remainder of the year.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Janet Freund

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