(Bloomberg Opinion) -- There goes the future of Chinese surveillance giant Hangzhou Hikvision Digital Technology Co.

For months, the risk of sanctions or other penalties has been hanging over Hikvision, one of the world’s largest makers of security cameras and other spying equipment. 

In August, President Donald Trump signed a law that forbade U.S. government agencies from buying surveillance products from Chinese firms including Hikvision, ZTE Corp. and Huawei Technologies Co. In September, the New York Times reported that the U.S. was considering sanctions against companies and Chinese officials over Beijing’s detention of thousands of ethnic Uighurs and other Muslim minorities in internment camps. Xinjiang, the western region where this is happening, is dotted with Hikvision cameras. The arrest of Huawei’s Chief Financial Officer (and the daughter of its founder) Meng Wanzhou over potential violations of U.S. sanctions on Iran brings all this to a head.

If this is the tack the Trump administration is now taking with Chinese businesses, then investors shouldn’t be surprised if Hikvision, whose largest shareholder is a state-owned company, goes next.

As with Huawei and ZTE, a company dependent upon U.S.-made components is looking vulnerable at a time when Washington’s enforcement of its sanctions is growing more robust. Hikvision has sold over 1,000 cameras to a massive surveillance network across Iran for one of the country’s largest lenders, Bank Tejarat. In November, the U.S. Treasury re-imposed sanctions on Tejarat, along with other Iranian entities. There’s no suggestion that Hikvision has been selling U.S. components to Iran in violation of sanctions, the issue that tripped up ZTE.

Consider how a supplier ban like that imposed on ZTE earlier this year would hit Hikvision. For many of its components, there aren’t many non-U.S. alternatives. It has a high reliance on Xilinx Inc. and Intel Corp. for certain integrated circuits used in its industrial cameras (part of its fastest-growing business), and relies on Intel and Advanced Micro Devices Inc. for parts of its central control equipment.

U.S. supplier Ambarella Inc., which sells image-processing chips to Hikvision, noted in its earnings call last month that it was already seeing a “reduction in their orders, particularly in the high end of the product range normally associated with their export business,” thanks to the U.S. procurement ban. 

That’s just the start. In a scenario where Hikvision had no access to U.S. parts, Bernstein analysts estimate, 10 percent of its revenue would be at “high risk” (because there are no alternative suppliers) and 10 to 12 percent at “medium risk” (with no ideal alternatives). A third of Hikvision’s sales are overseas. Of those, about a quarter are to the U.S. and 20 percent to Europe.

To be sure, the rapid growth of China’s domestic surveillance market into smaller cities and rise of facial recognition, behavior prediction and so-called “deep learning” technologies could help offset some of this. Hikvision has started steering into the artificial intelligence space with a mobile surveillance system that can store up to 300,000 faces. 

At the same time, Hikvision’s sizeable business supporting the Chinese security state should be cold comfort given its dependence upon imported U.S. components. ZTE got out of its problems thanks to the payment of as much as $2.29 billion in penalties, but the impact on its business (and Huawei’s) from tangling with the U.S. government is likely to be lasting.

Hikvision USA Inc. has already got itself a bench of lobbyists including Mercury Public Affairs, Burson-Marsteller LLC and Sidley Austin, paying them hundreds of thousands of dollars to help deal with these policy issues, according to government documents. But just the threat of sanctions has weighed on Hikvision’s stock price. The shares were down around 27 percent this year by Wednesday, despite decent financial results. Following news of the Huawei arrest Thursday, they shed another 4.5 percent. 

However good the fundamentals around this company look, they won’t hold much sway with investors while the long arm of U.S. law is looming.

To contact the author of this story: Anjani Trivedi at atrivedi39@bloomberg.net

To contact the editor responsible for this story: David Fickling at dfickling@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

©2018 Bloomberg L.P.