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US-China trade war rocks big tech; T-Mobile rises amid reported deal concessions

Rapidly escalating trade tensions between the U.S. and China took a toll on some big tech names — including Apple Inc. and Intel Corp. — for the week ended May 17, while Sprint Corp. and T-Mobile US Inc. stock also saw movement amid updates to the pending merger between the two wireless carriers.

On May 10, the U.S. raised tariffs on $250 billion of Chinese imports to 25% and promised more tariffs to come. China hit back on May 13 by imposing levies of up to 25% on $60 billion of U.S. imports beginning in June.

Adding a new wrinkle to the trade saga, the U.S. on May 15 blacklisted Chinese telecommunication equipment provider Huawei Technologies Co. Ltd., citing perceived threats to U.S. national security or foreign policy interest.

Huawei has long been on the radar of U.S. officials, who have cautioned companies against using telecommunications equipment from certain Chinese companies. Chinese leadership condemned the move, warning Washington that it could further worsen the already strained ties between the two countries.

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Apple especially felt the pressure this week, with some analysts saying growing hostilities between the U.S. and China could force the company to pass along the burden to consumers in the form of higher prices.

J.P. Morgan analyst Samik Chatterjee in a May 14 research note estimated that Apple would need to raise iPhone prices by 14% to offset the higher cost of components if the U.S. ever expands the scope of its tariffs to include all imports from China.

The analyst used the iPhone XS model, which retails for $999, as an example of what the device cost without tariffs versus what it would cost if a 25% tariff was applied to all China-made components. The latter would raise the iPhone's retail price up to $1,142, the firm calculated.

Wedbush Securities analyst Daniel Ives said in a research note this week that the trade situation could raise the cost for Apple to manufacture iPhones by 2% or 3%, with the potential to increase by as much as 10% over time, in a worst-case scenario.

Ives also questioned how the Huawei ban could impact the 5G technology efforts of major tech players such as Apple and Intel.

"The Trump administration's ban on Huawei products in the U.S. is just the latest Fort Sumter moment with 5G at the center of this divisive issue on the technology front between the two countries with now worries that more retaliatory tactics can be deployed by China," Ives wrote.

Intel in April revealed its intention to exit the 5G smartphone modem business, mere hours after Apple — which had used Intel as a modem supplier for its most recent iPhones — said it had settled a long-running licensing dispute with chipmaker QUALCOMM Inc. Intel's departure from the 5G smartphone modem business leaves Qualcomm as the sole U.S.-based supplier of 5G modem chips.

Also this week, reports circulated that Intel is facing a new class of chip vulnerabilities termed "ZombieLoad," reminiscent of the Meltdown and Spectre security flaws that plagued the company last year.

Apple stock lost 4.15% in value this week, trading at $188.99 around midday May 17. Intel shares were trading at $45.24 midday May 17, down 2.07% for the week.

Turning to communications, Sprint and T-Mobile shares rose slightly amid reports that the two companies are considering making concessions to gain regulatory approval for their pending merger.

T-Mobile and Sprint are considering a separation and potential sale of their prepaid businesses, Bloomberg News reported this week. Analysts largely saw the move as a positive step forward, with New Street Research Policy Advisor Blair Levin writing in a May 17 report that he believes prospects for approval of the deal are now "improving." Beyond the Bloomberg report, he pointed to meetings between the companies and officials at the U.S. Federal Communications Commission. Both the FCC and U.S. Department of Justice must approve the deal for it to close.

Around midday May 17, Sprint shares were trading at $6.20 apiece, up 0.16% for the week; T-Mobile stock was trading up slightly at 0.66% midday May 17, at $75.73.

In other M&A news, shares in Lions Gate Entertainment Corp. spiked on May 17 after The Information cited sources familiar with the situation as saying CBS Corp. made an informal acquisition offer for Starz/Starz Encore (US). CBS, which already owns the premium networks Showtime/TMC/Flix (US), reportedly offered approximately $5 billion for the channel. Lions Gate acquired Starz for approximately $4.4 billion in cash and stock in 2016.

Shares in Lions Gate were trading at $15.21 as of 2:10 p.m. ET on May 17, up 11.84% for the day.