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CSCI-Technology-China Technology Monthly：Huawei’s AI push shocks global technology and semiconductor industry - 20181016

Huawei’s AI push shocks global technology and semiconductor industry

 

Smartphone: a lukewarm peak season anticipated. China’s smartphone shipments witnessed a soft MoM rebound of 20.7% in Sep-18, merely narrowing YTD decline to 16.8% YoY from 17.5%. We expect lukewarm demand during the forthcoming regular peak season period (Nov-Dec) in 2018 in light of 1) marginal improvement in iPhone sales boosted by the mid-end model iPhone XR with premium model sales expected to remain flat , 2) a lack of killer specs on OPPO, vivo and Xiaomi’s new models, and 3) the appealing Huawei Mate 20/20 Pro unlikely to make up for the aforementioned weak demand.

Semiconductor: the Huawei AI shockwave. Huawei unveiled a range of AI chips on 10 Oct 2018, sending a shockwave across the global technology and semiconductor industry. Huawei’s ascend to the forefronts of the cutting-edge technologies would significantly bolster China’s competitive edge amid persisting trade tensions with the U.S., in our view. Should there be a solution to the trade dispute between China and the U.S., we expect to see a strong rebound in Chinese technology companies’ shares. 

Telecoms: better defensive plays. The China-US trade war and domestic regulations are affecting a rising number of sectors in China, from education, online games to pharmaceutical, though the telecoms sector appears to be even more defensive than ever before, as the telcos could still have a good time window to maintain solid earnings growth. 

Stock picks. In spite of signs of improving shipment data, we do not see a sustainable turnaround for the smartphone suppliers. In our coverage universe, we see good value in Hua Hong Semi (1347 HK), room for further re-rating on China Comservice (552 HK) and good defensive performance with China telcos.