Analyst: Huawei Blacklist Is $400M Risk For Google

Plenty of Wall Street analysts have weighed in on Apple, Inc. AAPL’s exposure to the U.S. trade war with China.

On Friday, one analyst said Alphabet, Inc. GOOG GOOGL could be at risk of losing more than $400 million in annual sales as a result of the recently announced Huawei blacklist.

The Analyst

Nomura Instinet analyst Mark Kelley reiterated a Buy rating on Alphabet with a $1,300 price target.

The Thesis

While popular U.S. apps like Facebook, Inc. FB and Netflix, Inc. NFLX are banned in China, Google has exposure to Huawei through the licensing its Android operating system to the company, Kelley said in a Friday note. (See his track record here.)

Google’s Play Store sales have major exposure to Huawei’s roughly 500 million global smartphone users, the analyst said. The sales most at risk are the 48 percent of Huawei’s sales that took place outside of China in 2018, he said.

Google’s services are blocked in mainland China, but Huawei uses a modified version of Android outside of China.

In a worst-case scenario, Kelley said Google could lose between $375 million and $425 million in Play Store revenue annually due to the Huawei blacklist.

In addition, Huawei is reportedly planning on launching its own mobile operating system as soon as the second half of 2019.

“While this could be a long-term solution to Huawei’s reliance on Android, we believe it will prove challenging to scale outside of China, especially if existing carriers continue to show a reluctance to back new device launches outside of China,” the analyst said.

Despite the trade war exposure, Nomura Instinet remains bullish on Alphabet shares in the long-term.