What happened
Shares of HD video system-on-a-chip maker Ambarella (AMBA -2.14%) are getting rocked this morning, down 13.5% in early trading, and rebounding to about a 10.4% loss as of 12:15 p.m. EDT.
The reason: Donald J. Trump.
In what feels like a continuation of the president's long-running trade war against China in general, and Chinese tech stocks in particular, the U.S. Department of Commerce has announced it is adding 28 Chinese security technology companies to its Entity List of sanctioned companies.
Image source: Getty Images.
So what
What does this have to do with Ambarella? American companies that wish to sell components to Chinese counterparts on the Entity List must seek specific U.S. government approval to do so. And the problem for Ambarella is that two of the companies on the list -- surveillance camera and video recording equipment makers Hikvision and Dahua -- are major customers of Ambarella products.
Already, analysts have responded to the news. KeyBanc cut earnings estimates for Ambarella, according to a note just out on TheFly.com. And Stifel Nicolaus cut its price target on the stock (to $54), citing the company's exposure -- 15% of revenue -- to the two named Chinese customers.
Now what
Things might not be quite as bad as they seem. A third analyst, Morgan Stanley, points out that just having its customers put on the Entity List doesn't absolutely forbid Ambarella from selling to them -- it just makes those sales harder, because Ambarella has to seek government approval for each contract.
Additionally, if addition to the Entity List crimps international sales of HIKVision and Dahua cameras, other Ambarella customers -- from outside China or at least not included on the Entity List -- may gain market share, replacing revenue lost due to the Commerce Department's action.
That's probably why Ambarella shares aren't suffering the full weight of a 15% loss of revenue in today's trading, but "only" a 10% loss instead.
