World’s third largest smartphone manufacturer added to US military blacklist

Shares of Xiaomi, the world’s third-largest manufacturer of smartphones, were slammed in Hong Kong trade on Friday after the US Department of Defense labeled it as having links with China’s military. As soon as trading started, Xiaomi stock plummeted and ended the day at 10.3%.

Xiaomi, which specializes in mass and mid-range phones, now sells more smartphones than Apple (AAPL). It has been one of the success stories of 2020. Xiaomi’s shares tripled in value during the year, as it won business from its mainland competitor Huawei Technologies, the primary initial target for US sanctions.

The Pentagon on Thursday named Xiaomi as one of nine new names on its list of “communist Chinese military companies”, which now include 44 US municipal corporations. Other notable additions include COMAC, or Commercial Aircraft Corp of China, which counts General Electric (GE) among its suppliers. GE makes engines for COMAC’s passenger jets.

According to Counterpoint Research, Xiaomi Q3 has surpassed Apple in 2020 to become the world’s third largest smartphone vendor, according to Counterpoint Research. Only Samsung, with 22% to 80.4 million phones in the market, and Huawei with 14% market share, sell more phones worldwide. Xiaomi’s market share has increased by five percent in a year, while Huawei’s share has declined.

Xiaomi released a statement on Friday that it “provides products and services for civil and commercial use.” The company “confirms that it is not owned, controlled or affiliated with the Chinese military,” and therefore should not be on the list. Xiaomi says it will “take appropriate action” to protect the company and its stakeholders.

The confusion in China is that many private companies have ties to the state. Even shareholder-owned companies have many times written the Communist Party as the final controller in their charter. If ordered to do so, any Chinese company will serve the central state. And telecoms are always of interest to military users.

The US Department of Defense stated that it is “determined to highlight and counter China’s military-civilian fusion development strategy, modernizing the People’s Liberation Army by ensuring enhanced PRC and expertise and its reach developed by those PRCs” Supports. ” Companies, universities and research programs that appear as civic institutions. “

The inclusion of Xiaomi and COMAC in the DoD list means they are now covered by the November 12 executive order of outgoing President Donald Trump. The order states that American investors, whether individuals or funds, can no longer buy shares of these companies. The order came into force on January 11 for a preliminary list of 35 companies, including Huawei, and would apply to any newly added companies such as Xiaomi 60 days after its inclusion. American investors have until November 11 to sell shares held in the first set of companies.

Huawei, which manufactures telecommunications network hardware and chipsets as well as phones, is in a more substantial entity list set up in Washington, preventing companies around the world from supplying it if they use American parts or technology. It is far more comprehensive than the current designation on Xiaomi, which makes consumer products rather than consumer systems. Entity List Banned It is very difficult for Huawei to make source chips for their phones, so it is important to see if Xiaomi is added to it.

Xiaomi has ADR shares listed in the United States under the ticker (XIACF), and US investors own 15% of its stock. Blackrock (BLK), Mohra and State Street (STT) are large blocks of stock for their funds.

Xiaomi has its primary listing in Hong Kong, where it set a record in terms of a follow-on offering by selling US $ 3.9 billion in stock as a share-up sale in early December. It went public in Hong Kong in June 2018 with a US $ 4.7 billion IPO. US pressure is increasing Hong Kong’s importance as a stock market for Chinese companies.

Beijing-based Xiaomi offers phones such as Apple at a budget price, and with an open-source system that allows users to customize how their phone operates. Its top phone phones sell for around US $ 400, but its cheapest drop is below US $ 100. So far, it has made its largest gateway to Asia, especially India, Indonesia, Hong Kong, Singapore and Taiwan. But it has remained the most recent in Europe.

Xiaomi rarely sells any phones in the United States. But it does rely on Qualcomm (QCOM) to supply chips for two-thirds of its phones, so a unit inventory designation would be disastrous, cutting off that supply.

The New York Stock Exchange has taken the drastic decision to de-list China’s three main phone companies after being slapped with the same military designation.

The NYSE flip-flopped, but it was decided after pressure from US Treasury Secretary Steve Mannuchin to de-list China Mobile (CHL), China Telecom (CHA) and China Unicom (CHU), including US $ 157 Billion has a combined market capitalization. This has caused index providers to separate phone companies and other similar shares from their indices, because Trump prohibited American investors from trading in any securities offered by those companies, as well as derivatives based on those securities. Has also given.

Hong Kong has de-listed derivatives as a result of US investment banks JP Morgan (JPM), Morgan Stanley (MS) and Goldman Sachs (GS). They have extracted 500 callable bull / bear contracts, derivative warrants and inline warrants in Hong Kong that were based on companies, or indexes that include them, Hang Seng, the highest index index in Hong Kong, and CSR 300. Main index for mainland Chinese stocks.

The action on the COMAC demonstrates the confusion sown by some of Trump’s orders. Trump stepped in last February to prevent the US Department of Commerce from denying GE a license to allow COMAC to sell jet engines.

At the time, Trump denied that there were any national security concerns for American companies supplying Chinese airplane manufacturers. “We are not sacrificing our companies … using fake words of national security. This is real national security. And I think people are being taken away from it,” he told reporters. He told reporters. He also said in a Twitter post that “I want China to buy our jet engine, which is the best in the world.”

GE also has a joint venture with Chinese aircraft manufacturer AVIC, Aviation Industry Corp, which is also on DoD’s list of military companies.

State runner Global Times The newspaper, often used to recount China’s foreign-policy stance, today ran a story quoting an academic saying the latest orders could be the “final frenzy” of the Trump administration. Some Chinese netizens jokingly said that Xiaomi should be congratulated, as the company is successful enough to come to the attention of the US Department of Defense.

Xiaomi and Huawei, as well as the teen-friendly app TikTok, are some of the most recognized Chinese brands internationally, where few Chinese companies have generated much for any recognition. All have been targeted by Trump’s orders.

The problems facing Huawei have encouraged China to finance the construction of the domestic semiconductor and telecommunications industry. Global Times An anonymous “telecommunications analyst” was quoted as saying that it is time for ZTE (ZTCOF), Huawei and Xiaomi to reopen the industry chain in China and work together to build a fully domestic supply chain .

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