How China’s market meltdown impacts big technology companies
Big technology companies like Cisco Systems, Intel, Hewlett-Packard, and Microsoft have all made big bets on China, an already huge market for business hardware and software. But with China’s economy weakening and its swooning stock markets, U.S. tech giants may be facing a difficult time there.
The consequences could have a major impact on the financial performance for U.S. tech companies. Even before, they faced increasingly tough competition from Chinese competitors and government pressure on Chinese companies to buy domestic products instead of American.
Last fall, Intel (INTC) plunked down $1.5 billion for a 20% stake in Tsinghua Unigroup, a state-run corporation that owns two Chinese computer chip designers and is funded by one of China’s premier research universities, Tsinghua University.
The semiconductor company has long been criticized for missing the boat on mobile in the U.S. market, and it’s plans to generate a mobile chip business in China faces tough competition from Chinese-based chip manufacturers like Allwinner Technology.
Hewlett-Packard (HPQ) has also tried to cozy up with Tsinghua University in an effort to boost sales in the region, with the company selling off 51% of its Chinese server and networking business to the university in May.
During a recent earnings call, HP CEO Meg Whitman told investors that “China remains a very big and important market for us, but it is very competitive.” She said HP’s recent China deals like the one it landed with Tsinghua University has already led to some improvements but she admitted that the “macroeconomic environment, particularly in places like Russia where we are over exposed, and China, is pretty challenging.”
Networking giant Cisco has also seen challenges in its China business. Former Cisco (CSCO) CEO John Chambers told investors in an earnings call in May that Cisco’s China business dropped 20% in the company’s fiscal third quarter. According to a Cisco spokesperson, Cisco’s China business currently accounts for less than 3% of the company’s total business.
In an attempt to spark some life in the region, Cisco in June said in a statement that it would invest $10 billion into China to “support the growth of local economies and businesses.”
As for Microsoft, it recently saw its mobile phone business take a hit in China with a market analyst firm reporting that shipments of mobile phones decreased to 27.8 million in the second quarter from the 50.3 million shipments it saw the previous year. Because of the decline, the research firm said that China-based Huawei overtook Microsoft as the country’s third biggest mobile phone maker.
Separately, Apple CEO Tim Cook (AAPL) tried to quell investor concern about his company’s performance in China by emailing CNBC host Jim Kramer Monday to say that business was doing just fine. In the note, he said sales in China remained strong in through July and August and that growth in the region outpaced the tech titan’s overall growth.
Clearly, U.S. based technology giants are having a tough time doing business in China. And while each company seems to have been pushing new investments and initiatives to build better relationships with the country, the likelihood of those bearing any fruit any time soon is tougher now that China’s economy is hurting.
As of mid-day trading Monday afternoon, shares of Cisco, HP, Microsoft (MSFT), and Intel were all fell amid the China news. Cisco’s shares fell 4.69%; Hewlett-Packard was down 3.48%; Microsoft lost 3.46%, and Intel dropped .3%.
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Story updated with stats on Cisco’s China business
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