By Adam Levine

News this past week that both Nvidia and Advanced Micro Devices are taking charges in the current quarter because of the latest U.S. rule limiting chip sales to China cast attention on a broader problem: Tech companies, in chip manufacturing and beyond, are at risk as Beijing and Washington square off.

All non-Chinese chip manufacturers face risk in China because the government is seeking to break the country's dependence on technology from the rest of the world. Until last year, this remained a distant goal, but the transition has begun with Chinese restrictions on its local and central government purchases of new PCs and servers. The collateral damage from that shift, and from the trade war in general, ranges widely from chip makers to software companies and the production of devices such as iPhones.

There are 18 central processing unit chips approved for Chinese governments, and none of them is from Intel or AMD, the two dominant players worldwide. Many of the approved CPU chips have intellectual property from Arm, a U.K. company, which means they could still fall victim to future local restrictions.

Microsoft's Windows operating system and Oracle's database software are the at leading edge of the problem for U.S. software companies. Like U.S. CPU chips, the Chinese government is also limiting U.S. software; new PCs and servers purchased by the Chinese government won't run Windows, but rather a choice of six homegrown options. When Chinese authorities unveiled restrictions on government purchases of PC and servers last year, they also listed 11 domestic options for databases.

These are long-term issues because shifting the installed base of software, PCs, and servers for the entire country will take time. The transition, beginning with government procurement, will require transforming the Chinese supply chain.

U.S. companies that make chips domestically, such as Texas Instruments and Intel, already see their Chinese sales under threat. Chips made in Taiwan by U.S. companies like Apple, Nvidia, Qualcomm, and AMD and then sent to China will be exempt from the country's 125% retaliatory tariff. There will be no such relief for chips produced in the U.S.

In fiscal 2024, Intel got 29% of its sales from China. The figure was 19% for Texas Instruments.

For now, smartphones and PCs imported into the U.S. don't face any of the most recent tariffs, but the Trump administration has signaled that it is going to place a separate set of tariffs on those products in the coming months.

Among Big Tech companies, Apple faces the most significant China risk because both its production and sales to local customers stand to be affected. Though Apple has some assembly in India and Vietnam, it still puts together a large majority of its devices in China. It will have a tough time changing that quickly.

While Chinese manufacturing provides relatively cheap labor, it also offers Apple the scale needed to produce vast numbers of devices. China is also centrally located to take advantage of the entire East Asian tech supply chain.

The only other country that can match China in scale is India, where Apple has begun to move some iPhone production. Estimates for India's production of iPhones range from 15% to 20% of the total.

Meanwhile, the shine may already be coming off the Apple brand in China, even before the trade war puts the business at greater risk. Sales in China and Taiwan were down 8% in fiscal 2024; they represented 17% of Apple's total revenue.

Because of its vast scale, India is also Apple's answer to the sales risks it faces in China. Apple began a full-court press in 2020 with the online Indian Apple Store, followed by retail stores in 2023. CEO Tim Cook frequently calls out Indian sales in earnings calls.

But like Apple's supply chain, recalibrating its massive sales toward India will also take time.

In terms of exposure to China risk, Amazon.com might be No. 2 on the Big Tech worry list; Amazon now faces much higher tariffs on imports than before, led by a tariff of at least 145% on most Chinese goods. Goldman Sachs analyst Eric Sheridan estimates that Chinese goods account for 20% to 40% of Amazon's first-party merchandise costs. Those expenses are poised to rise significantly in a trade war.

Sheridan didn't make a comparable forecast for Amazon's robust third-party business, which accounted for 37% of the company's retail sales in 2024. That injects uncertainty into the outlook. Amazon knows what is happening in the supply chain for its own inventory, but it may not have the same level of detail for its third-party vendors. That means investors are likely to be left in the dark, as well.

Amazon didn't immediately respond to a request for comment.

Within Big Tech, the most insulated from China risk are Alphabet and Meta Platforms. Services like Google Search and Facebook don't operate in China, though the two companies do get some revenue from Chinese companies advertising to customers across the globe.

A trade war could eat into the 11% of 2024 revenue that Meta got from China. Alphabet doesn't break out Chinese sales, but 16% of 2024 revenue was from the Asia-Pacific region.

Write to Adam Levine at adam.levine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 18, 2025 11:46 ET (15:46 GMT)

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