Intel can Skip Steep Tariffs, Analysts Say

Intel Corp, which is the world’s largest chipmaker by revenue and a widely known US manufacturer, could still avoid the most drastic effects of a new list of Chinese tariffs put forward by US President Donald Trump by shifting its production among facilities, according to analysts.

Last Friday, Trump stated that he was planning to follow through with tariffs on $50 billion worth of Chinese imports. Even if chips were mostly excluded from the initial list of targeted goods released in April, US trade officials released another list on Friday showing the second tariff proposals including nearly 300 products worth $16 billion. The list included the processor and memory chips that were at the core of Intel’s business.

The tariffs will not be implemented until after a public comment period. According to analysts, there are still chances that the chips will be spared and will not make it to the final cut. Still, Intel shares slipped 3.4 percent to $52.22 on Monday over news of a stock downgrade along with investor concerns over steep tariffs.

Late on Monday, Trump announced that he might push through $200 billion more in tariffs on Chinese goods, but it was still unclear whether the recently released list would include more chips or computing products that might affect Intel.

The analysts suggest that the chipmaker could shift its production strategies to avoid the full impact of the tariffs. Intel currently produces raw chips at 6 “water fabs.” Three of these are found in the United States. One is found in Ireland, one in China, and one in Israel. From these water fabs, the chips are transported to assembly and test facilities.

After going through the assembly and test facilities, the chips are sold to the company’s customers, which are huge computer brands or contract manufacturers who work on behalf of the customers. A huge chunk of these entities are located in China since the Asian country is where most electronics are manufactured. This is the reason while Intel recorded $14.8 billion in China revenue last year.

However, Intel’s $12.5 billion revenue from the United States is what really is at risk. if the company builds the chips in its US plants in Arizona, New Mexico, or Oregon, then transports them to China for low-level assembly work, and then brings it back to the US so it could be put into devices manufactured in the US, the chips could be smacked by the tariff duties.

On the other hand, Intel also has assembly and test centers in Malaysia, Vietnam, and Costa Rica. The chips that come from non-Chinese water-fabs sold to American companies passing through those facilities can potentially be spared from the sharp tariffs.

“My sense is they can probably skip most of the tariffs,” stated Dan Hutcheson, who is the CEO of VLSI Research Inc.

HQBroker is here to give you a daily news roundup about the forex, commodities, technologies, automobiles, and economies. You can open an account now and make yourself updated with essential news in the market. Share your thoughts and experiences with us by commenting your HQBroker reviews.