Investing.com -- U.S. wafer fab equipment (WFE) suppliers are unlikely to be exempt from China’s new 125% retaliatory tariffs, according to Bernstein analysts in a note Thursday.
The firm says this raises concerns about potential market share loss and margin pressure for major vendors such as Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX).
"Many investors anticipated that WFE imports from the US might be exempt from Chinese tariffs due to the sector’s strategic significance for enhancing domestic fab capacity," Bernstein analysts wrote.
"However, the official statement clearly indicates that no existing exemptions will apply to this additional tariff."
Bernstein said the tariffs could pose a short-term challenge to Chinese fabs as well, particularly in areas like doping and process control where “local alternatives are still lacking.”
But in the long term, the firm says the shift could boost local Chinese equipment makers such as NAURA, AMEC, and Piotech.
“US vendors might face potential share loss or margin dilution,” the note said.
Bernstein explains that the impact will depend largely on how China Customs defines the “country of origin” for WFE.
“Judging by the current documents, very counterintuitively, the origin of semicap may be determined instead by where the majority of components are manufactured,” Bernstein said. This scenario could put as much as 11% of U.S. vendor revenue at risk.
Bernstein estimates the worst-case impact on AMAT and LRCX at around 4% of total revenue, while Chinese competitors could see a “24% upside” under a moderate scenario.
Bernstein outlined three scenarios and said it believes a big portion of the potential upside could be captured by local vendors.
The firm concluded that while exemptions may be revisited in the future, “we don’t think US WFE will be exempted from China retaliatory tariffs” under current policy.