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The Impact of China's Economic Slowdown on the U.S. Tech Sector

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Andrew R. Michaud

• August 19, 2023

An economic slowdown in China has raised concerns about its potential repercussions on the U.S. tech sector, which heavily relies on revenue generated from this region.

Economic Growth and Consumer Trends

China's economy grew by only 0.8% in the second quarter, showing a decline compared to the growth rate observed during the same period last year. This slowdown is accompanied by decreasing exports and falling consumer prices.

Unemployment and Real Estate Sector Woes

An alarming upward trend in youth unemployment has been observed in China, with rates exceeding 20% each month in the first half of this year. Concerningly, the Chinese government has decided to halt reporting on this issue.

Furthermore, the property sector is also facing challenges. Country Garden, the country's largest private real estate developer, recently missed some bond payments and anticipates recording a significant loss for the first six months of this year.

Pressure on Companies Operating in China

These developments have intensified the pressure on companies that have exposure to the Chinese market. As a result, the VanEck Semiconductor ETF (ticker: SMH) has experienced a 9.4% decline in August. However, it is still showing an overall increase of 43% for the year.

Revenue Analysis: S&P 500 Companies

To gain a deeper understanding of the impact, ’s and Dow Jones Market Data have analyzed the revenue breakdown of S&P 500 companies. This analysis specifically focuses on companies with a significant percentage of their revenue derived from China, including its Macau and Hong Kong territories (referred to as the mainland). The analysis excludes Taiwan.

Eight out of the 10 companies with the highest share of revenue from China are chip makers or involved in the chip industry. Leading this list is Qualcomm (QCOM).

• Qualcomm's revenue from China accounts for 63.6% of its total as of Sept. 30, with the majority coming from the mainland and a small portion from Hong Kong. In August alone, the stock has faced a 17% decline according to FactSet.

Monolithic Power Systems (MPWR) follows closely behind Qualcomm. This semiconductor-based power electronics equipment manufacturer derives 51.3% of its revenue from China, exclusively from the People’s Republic. Its stock has declined by 13% this month.

Note: Qualcomm and Monolithic Power Systems have not provided a comment regarding these developments.

Overall, the economic slowdown in China has raised concerns among companies with significant exposure in the region, particularly those in the chip industry. These developments are closely monitored as they continue to impact the U.S. tech sector.

Texas Instruments (TXN) holds the third spot on the list of companies with a significant revenue share coming from China. As of December 31, 48.2% of its revenue originates from mainland China. Unfortunately, the company's stock has experienced a decrease of 7.9% in August. Texas Instruments informed us via email that approximately 25% of its revenue for the year 2022 came from customers headquartered in China. They mentioned that changes in demand from any region can have an impact on their business, as many of their customers sell their products worldwide.

Several other companies also heavily rely on the Chinese market. For instance, Western Digital (WDC), which specializes in data storage devices, NXP Semiconductors (NXPI), and Broadcom (AVGO) rank high on the list.

NXP reported that 34.9% of its revenue came from mainland China at the end of last year, experiencing a stock decline of 13% in this month alone. They emphasized that approximately half of their sales in this region are for re-export, meaning Chinese companies purchase their chips to embed them into products and sell them globally. As of the second quarter of 2023, NXP stated that their revenue percentage from China dropped to 30%.

While most companies on the top 10 list are chip-makers or tech firms, Las Vegas Sands (LVS), a well-known casino operator, breaks the pattern by securing the fifth position. 39.3% of Las Vegas Sands' revenue is derived from China, specifically from the gambling hub of Macau. Their stock has witnessed an 11% decrease in August.

Albemarle (ALB), a specialist in chemical manufacturing with a significant lithium business, occupies the eighth position with 32.3% of its revenue coming from China. Unfortunately, their stock has declined by 14% this month.

Neither Albemarle nor Las Vegas Sands provided a comment regarding the situation when approached for a response.

Additionally, Estée Lauder (EL), a popular cosmetics firm, narrowly missed the top 10 list but still relies on China for a substantial portion of its revenue. Approximately 29.7% of the company's revenue originates from the mainland. Their stock has observed a decline of nearly 10% this month. Unfortunately, Estée Lauder did not respond to our request for comment.

Sources: FactSet, Dow Jones Market Data.