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China aims to phase out foreign chips from telecom systems: WSJ

In a blow to Intel (INTC) and AMD (AMD), China has asked its largest telecom carriers to phase out foreign chips from their networks by 2027, according to a Wall Street Journal report. With shares of Intel and AMD sinking on the news, Yahoo Finance's Akiko Fujita joins Yahoo Finance to discuss China's effort to remove American-made semiconductors from its technology.

Despite US export controls aimed at Huawei's semiconductor capacities, the Chinese technology company is still able to produce chips for Chinese telecom carriers. China constitutes a large share of Intel and AMD's revenue, though only some of the demand comes from telecommunications and data centers.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.

This article was written by Gabriel Roy.

Video transcript

BRAD SMITH: China is reportedly now looking to completely phase foreign chip makers out of its telecom systems by 2027, according to the Wall Street Journal. Shares of both Intel and AMD are sinking of the report. Yahoo Finance's Dan Howley joins us now with the details. Hey, Dan.


Dan I think we're going to get your audio squared away just real quick here if we can. Let's try to unmute you. Let's try it again.

DAN HOWLEY: Sorry about that guys.

BRAD SMITH: There we go. Hey, bing bong.

DAN HOWLEY: Yeah, it's Friday. I'm partying a little too much already. Yeah, I mean this is like a big deal but not a catastrophic deal for Intel and AMD. The telecom industry relies heavily on their chips, both Intel and AMD, to power their servers. But increasingly, this is according to the Wall Street Journal, the government officials are pushing to get those chips out and have them replaced with local made chips by the likes of Huawei for instance.

Now prior years that wouldn't have been an issue because Huawei chips simply couldn't keep up with what Intel and AMD were capable of. However, that's changed. Despite US export controls on Huawei or on capabilities for Huawei, the company is still managing to produce chips that are in line with what's necessary for telecom carriers. So this would be a problem, obviously, for Intel and AMD.

Shares were down 2% for both companies last I checked, but I think the broader thing to look at is that when it comes to servers globally, Intel and AMD are the CPU makers that everybody seems to go with. So while China does make up a bulk of revenue for Intel, for instance, the majority of that is coming from the client group not necessarily the data service-- data centers group, so people buying PCs, companies buying PCs, things like that are equipped with Intel chips as well as AMD chips.

Part of the problem is that government officials are also trying to get their organizations to go with PCs, laptops, desktops that don't have Intel or AMD chips in them have homegrown chips in them and that could be an issue in the long run. Though to be fair, there's far more people who are non-government officials than are government officials. And when we had our run of government agencies banning TikTok, it was, well, it's just government officials people can still use their own devices and look at TikTok.

And the same thing goes here. While they may not be able to use Intel chips on the job, they would be able to use them privately. So it's going to be kind of a toss up. I think that's why you're seeing a relatively muted reaction to this news. Otherwise, it might-- shares might be down a little bit more. If it was a blanket ban, obviously that would be catastrophic for both companies.

But at this point, we could start to see more agencies kind of pull back on Intel and AMD. And look, we did the same thing to Huawei. Don't forget we had our telecoms pull them out of the ground as well.