Lenovo Plunges 23% as Tech Wreck Bleeds Into Asia

Bloomberg  | Oct 05, 2018 02:10

Lenovo Plunges 23% as Tech Wreck Bleeds Into Asia

(Bloomberg) -- Chinese computer maker Lenovo Group Ltd. slumped the most in almost a decade Friday, one of the multiple casualties from mounting investor concern about the risk of business with American customers in face of U.S. scrutiny of IT security.

As investors digested a Bloomberg News report that Beijing had hacked American computer networks using a microchip built by its spies, benchmark stock indexes tumbled across Asia. Taiwan’s Taiex index led declines in the region, retreating as much as 2.5 percent while counterparts in Hong Kong, Japan and South Korea helped drag the MSCI Asia Pacific Index to a fifth day of losses. Lenovo slumped as much as 23 percent.

“Electronics produced in China may be viewed unsafe due to this news, and tech shares are falling in general because of that,” Ray K W Kwok, an analyst at CGS-CIMB Securities Hong Kong Ltd., said of the Bloomberg story.

Read here how China used a tiny chip to infiltrate almost 30 U.S. companies

The news of an investigation of altered motherboards became the latest sign of deteriorating relations between the U.S. and China, which were already embroiled in a months-long trade war. A speech Thursday by Vice President Mike Pence criticizing China across multiple economic, commercial and diplomatic fronts only added to the negative tone.

Beijing-based Lenovo, one of the world’s top PC makers, didn’t immediately reply to calls and emails seeking comment. Chinese markets and offices are closed for a week-long holiday.

ZTE Corp (HK:0763)., a Chinese communications-gear maker that’s been hit by American sanctions, tumbled as much as 14 percent in Hong Kong trading.

Semiconductor stocks around the world had already been under persistent pressure this year on concerns the cyclical industry has peaked amid flagging smartphone sales. Taiwan Semiconductor Manufacturing Co. was down 1.8 percent as of 11:03 a.m. in Taipei.

Lenovo could be particularly vulnerable because it generated more than 30 percent of its revenue from North America and 75 percent from outside China in the most recent fiscal year.

It has built up its foreign sales through acquisitions, particularly from International Business Machines (NYSE:IBM) Corp. The company bought IBM’s PC business in 2005, including the ThinkPad notebook brand, and then agreed to buy its low-end server business in 2014. It also acquired Motorola (NYSE:MSI) Mobility from Google Inc (NASDAQ:GOOGL)., now known as Alphabet Inc., in 2014 in a $2.9 billion deal to bolster its smartphone business.

“The hack report has nothing to do with Lenovo, but since Lenovo sells PCs and severs there, some investors may have concerns on a sentiment level,” said Dennis Guan, a senior analyst at eFusion Capital. “It’s just too hard to predict how things will develop.”