Dahua And Hikvision Stocks Drop After US Bans American Firms Selling To ZTE, Fears Of Broader Impact

Hikvision and Dahua share prices fell almost 10% after the US banned American companies from selling parts to Chinese telecom giant ZTE on Monday.

The Department of Commerce banned American companies from supplying ZTE for seven years after if found ZTE had lied about disciplining employees involved in illegally shipping US goods to Iran. ZTE is China’s second largest telecom and networking equipment maker after Huawei and the move was widely interpreted as being the latest blow in the ongoing US-China trade conflict.

Many Chinese stocks fell on the news, particularly in tech. Chinese investors fear that a company like Hikvision could be the “next ZTE” because it is a beneficiary of Made in China 2025, an industrial program focusing on hi-tech sectors that the US has targeted.

Hikvision would be particularly vulnerable because of its use of Intel and Nvidia for its AI / deep learning efforts. (See "Hikvision Nvidia Supercomputing Partnership" and "Hikvision Partners with Intel Movidius for Artifical Intelligence Cameras.") However, Chinese media has reported that the "domestic proportion of AI chips [used by Hikvision and Dahua] for front-end cameras has gradually increased, and only a few products, such as GPUs for back-end data centers, rely on imports."

Despite the fears, the US has given no indication that it will target Hikvision or Dahua in the future. China has retaliated by imposing hefty anti-dumping duties on imports of American sorghum.

Hikvision and Dahua's stock prices can be seen below - note the sharp drops on Tuesday, April 17, the first day of trading in China after the US' announcement.

Update: Hikvision has responded to concerns that it will be the next ZTE in an earnings call with investors on Monday. Overall, Hikvision downplayed the situation, saying it had "very good" suppliers in China in case the US banned American companies like Nvidia from selling to it:

"...we are always prepared to respond to unexpected situations. We have considered backup solutions for any mainstream product line," Hikvision's senior VP Huang Fanghong said according to Chinese media.

The Nikkei Asian Review, however, included more cautious remarks from Fanghong:

"We do recognize that politics and trade tensions could definitely have negative impacts on our company's overseas business ... it's so unpredictable at this point," she said.

"We don't think we could work hard to change anything, especially when such uncertainties looming on the horizon come more from the political side... but not from the business side."