In the past five trading days, telecom stocks initially rallied on optimism over a U.S. proposal to initiate talks with China in the near future to iron out the trade-related differences between the two countries. However, the uptrend fizzled out as President Trump imposed tariffs on additional $200 billion worth of imports from China starting next week, and the stocks dived sharply. Thereafter, the stocks followed a flat trajectory, only to rise at the end of the week as traders eventually shrugged off concerns regarding the burgeoning trade war.
Despite the reported outreach by U.S. Treasury Secretary Steven Mnuchin to get the bilateral trade negotiations back on track, the Trump administration levied tariffs on 5,745 imported goods from China. The tariffs will be initially imposed at 10% and will be subsequently increased to 25% from 2019. About 297 items were removed from the initial list prepared by the government and the final list included a wide array of consumer goods, from minerals used in manufacturing to vegetable juices as well as leather handbags. In retaliation, China has announced tariffs on $60 billion worth of U.S. goods, which includes 10% levies on 3,571 items and 5% on another 1,636 products.
Amid such trade skirmishes, both the Republicans and Democrats have decided to keep China’s leading telecom manufacturer ZTE Corporation under continuous pressure by proposing regular compliance certificate in accordance with the sanction law or risk another ban. The bill, dubbed the ZTE Enforcement Review and Oversight (ZERO) Act, will likely strain the already punctured relationship of both the countries and could harm the telecom sector in general in the long run.
Regarding company-specific news, product launches, strategic deals and technological collaborations took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. ADTRAN, Inc. (ADTN - Free Report) announced that it has launched a simple and easy-to-use enterprise-class Wi-Fi solution for the small business market. The product leverages machine learning technology and cloud-managed IT model to effectively serve this underserved market.
The product is designed to enable service providers optimize their operating expenses and increase average revenue per user. It requires no installation or management of on-premises controller or software and is entirely cloud-managed as access points automatically discover the cloud and download firmware configuration. (Read more: ADTRAN Launches Simple Yet Effective Enterprise-Class Wi-Fi)
2. Juniper Networks, Inc. (JNPR - Free Report) has launched a cost-effective cloud solution for service providers. Dubbed the Contrail Edge Cloud, the product offers a full-fledged secure cloud experience to the space- and power-constrained edge network, which includes base stations, hub sites and switching sites.
The Contrail Edge Cloud solution provides automation, security and analytics features to facilitate service providers in deploying dynamic consumer and enterprise services in a cost and resource efficient manner. It offers low-latency, simple, automated delivery without sacrificing the rich functionality of a multitenant secure cloud and enables service providers to create, manage and monetize new services in preparation for 5G. (Read more: Juniper Launches Cost-Effective Contrail Edge Cloud Solution)
3. Nokia Corporation (NOK - Free Report) announced that it plans to lay off about 500 employees by the end of 2018 in the Chicago area as part of its corporate objective to lower operating costs and improve profitability. The strategic move was largely fuelled by a massive industry consolidation, owing to which, Nokia ended up with a huge pool of assets and human capital due to a series of acquisitions over the years.
In order to reduce excess workforce, Nokia terminated 250 employees in Naperville early this month and disclosed plans to lay off another 250 staff by the end of the year. The legacy employee base was a huge burden on the company’s coffers and escalated operating costs, shrinking margins amid a cut-throat competitive market. (Read more: Nokia to Trim Naperville Workforce by 500 in 2018)
4. Qualcomm Technologies, Inc, a subsidiary of QUALCOMM Incorporated (QCOM - Free Report) , China Mobile Research Institute and China Mobile IoT Company Limited announced new roadside units for 3rd Generation Partnership Project Release 14 LTE-V2X direct communication. The system is based on the Qualcomm 9150 Cellular Vehicle-to-Everything (C-V2X) chipset solution.
The strategic collaboration among these three entities underscores the expansion of the long-term relationship for the development of the connected vehicle industry in China. LTE-V2X, which will pave an evolutionary path toward 5G New Radio, is a core technology of the Intelligent Transport System. It is a global solution for V2X communications designed to support improved automotive safety, automated driving and traffic efficiency. (Read more: QUALCOMM Unit to Boost LTE-V2X Commercial Roll-Outs in China)
5. Verizon Communications Inc. (VZ - Free Report) announced that it has been selected by SAP SE to build the latter’s next-generation global network infrastructure. SAP is a Germany-based multinational software corporation that makes enterprise software to manage business operations and customer relations.
SAP is planning to have a secure platform to improve support for customer-facing applications and provide a better user experience to its employees and customers. To that end, Verizon will integrate SAP’s global network infrastructure for easier and more cost-effective network management. Verizon’s innovative network solutions will help SAP to build a future-ready infrastructure that will support exponential growth of its cloud business. (Read more: Verizon to Build Next-Generation Global Network for SAP)
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 past five trading days, Juniper was the major gainer with its share price increasing 5.7%. Verizon was the major decliner with its stock losing 2.7%.
Over the past six months, Qualcomm was the best performer with its stock appreciating 23.3%, while AT&T declined the most with its shares falling 7.9%.
Over the past six months, the Zacks Telecommunications Services industry has recorded an average return of 1.4% while the benchmark S&P 500 Index has gained 7.1%.
What’s Next in the Telecom Space?
In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to the continued trade spat and its recurring effect on the industry as a whole.
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