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Telecom Stock Roundup: Motorola Earnings, Arista Lawsuit Settlement & More

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In the past five trading days, telecom stocks continued their steady uptrend on the back of solid sector earnings as most firms managed to beat estimates. Even China’s aggressive stint to impose additional 25% tariff on $16 billion worth of U.S. imports from Aug 23, as a retaliatory move against President Trump’s proposed tariffs of the same magnitude on the same day, failed to dent the upswing.

The list of products on which China intends to impose additional tariff includes fish meal, wood waste, paper and paper waste, metal scraps, various types of bicycles and cars, and medical equipment. This followed a proposed tariff on $60 billion worth of U.S. imports announced last week, taking the tally to $110 billion. The tit-for-tat tariffs were in response to Trump’s proposition to increase the same on $200 billion worth of imports from the communist country from 10% to 25% as a punitive measure against its retaliatory tactics. The rhetoric further threatens to escalate the conflict by bringing into the tariff gambit the entire $500 billion worth of goods shipped from China to the U.S. shores.

Amid spiraling tensions and continued skirmishes, the U.S. Democratic candidates were advised by the Democratic National Committee to refrain from using China's ZTE and Huawei products in the run up to the Presidential elections on potential security risks. Meanwhile, the FCC (Federal Communications Commission) has unveiled the detailed procedure for the upcoming spectrum auction in the United States on Nov 14. The process would begin with the auction of 28GHz band in the standard simultaneous multiple round auction format, followed by the 24GHZ band in a clock auction format. In the second half of 2019, FCC further intends to hold an auction of three more millimeter-wave spectrum bands: 37 GHz, 39 GHz, and 47 GHz.  
             
Regarding company-specific news, quarterly earnings, breakaway deals for 5G technology embrace and patent lawsuit settlements took the center stage over the last five trading days.

Recap of the Week’s Most Important Stories

1.    Motorola Solutions, Inc. (MSI - Free Report) reported strong second-quarter 2018 results on the back of healthy growth across all geographic regions.

Excluding non-recurring items, non-GAAP earnings for the reported quarter were $1.46 per share compared with $1.12 in the year-ago quarter, primarily attributable to top-line growth. The bottom line exceeded the Zacks Consensus Estimate of $1.37. Net sales came in at $1,760 million compared with $1,497 million in the year-ago quarter, driven by organic growth of 6%. Quarterly sales exceeded the Zacks Consensus Estimate of $1,709 million. (Read more: Motorola Trumps Q2 Earnings & Sales, Raises Guidance)

2.    T-Mobile US, Inc. (TMUS - Free Report) reported healthy financial results in the second quarter of 2018, driven by record-high service revenues and profitability.

Net income for the reported quarter came in at $782 million or 92 cents per share compared with $567 million or 67 cents per share in the year-ago quarter. The healthy year-over-year increase was attributable to the positive impacts of the adoption of the new revenue standard and hurricane-related reimbursements. The bottom line beat the Zacks Consensus Estimate by 6 cents. Quarterly total revenues increased 3.5% year over year to $10,571 million, primarily driven by growth in service revenues, partly offset by lower equipment revenues. The top line missed the Zacks Consensus Estimate of $10,636 million. (Read more: T-Mobile Q2 Earnings Beat, Revenues Miss Estimates)

3.    Arista Networks, Inc. (ANET - Free Report) has settled its long-pending patent litigation with rival Cisco Systems, Inc. by agreeing to pay $400 million in a binding agreement.

As part of the settlement process, Arista has agreed to enforce “certain limited changes” to its user interface for operation that has been the bone of contention. The deal also involves binding restrictions on both the companies and prohibits them from claiming any patent or copyright infringement on products that are available in the market for about five years. In addition, both Arista and Cisco will have to resolve any copyright and patent infringement dispute relating to new products or new features in existing product in the next three years through an arbitration process only. (Read more: Arista to Pay $400M to Cisco for Patent Lawsuit Settlement)

4.    United States Cellular Corporation (USM - Free Report) reported impressive second-quarter 2018 results wherein both the top and the bottom line surpassed the respective Zacks Consensus Estimate.

Adjusted earnings per share came in at 47 cents compared with 17 cents in the year-ago quarter. The bottom line comfortably beat the Zacks Consensus Estimate of 19 cents. Quarterly total operating revenues increased 1% year over year to $974 million driven by growth in both its operating segments and surpassed the Zacks Consensus Estimate of $961 million. (Read more: United States Cellular Q2 Earnings Beat, Guidance Up)

5.    InterDigital, Inc. (IDCC - Free Report) kept its earnings steak alive in the second quarter of 2018, reporting better-than-expected results. Strength in licensing activities and continued operating expense discipline led to the strong performance.

Adjusted earnings for the quarter came in at 30 cents per share (under the revenue recognition standard "ASC 606"), which surpassed the Zacks Consensus Estimate of 22 cents. Revenues totaled $69.6 million, down 48.8% year over year. However, the reported figure surpassed the Zacks Consensus Estimate of $63.8 million. (Read more: InterDigital Earnings & Revenues Beat Estimates in Q2)

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and during the past six months.



In the last five trading days, Sprint Corporation (S - Free Report) was the major gainer with the share price increasing 11.5%. SBA Communications Corporation (SBAC - Free Report) was the major decliner with its stock losing 2.8%.

Over the last six months, Motorola was the best performer with its stock appreciating 15.5% while AT&T Inc. (T - Free Report) declined the most with its shares falling 12.4%.

Over the last six months, the Zacks Telecommunications Services industry has recorded an average fall of 2.9% while the benchmark S&P 500 Index has gained 7.9%.



What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to how the telecom sector braces itself for the impact of the intensified trade war.

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