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Will the Bull Run of Wireless Equipment Makers Continue?

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U.S. stock markets have remained highly volatile so far this year. Inflationary expectations, concern of higher interest rate, imposition of tariffs resulting in a looming trade war and several geopolitical conflicts are the primary reasons behind the market instability. However, the wireless equipment industry maintained its bull run even under these foreboding circumstances, surprising many investors.

Year to date, the wireless equipment industry has gained more than 12.6%, outpacing the Computer and Technology sector’s growth of 2.3%. Notably, the wireless equipment industry is part of the Computer and Technology Sector. Moreover, growth of wireless equipment industry is way ahead of the 1.8% gain recorded by the benchmark S&P 500 index.

Strong Wireless Infrastructure Market

With rapid growth in video and other bandwidth-intensive applications, the wireless industry participants are making considerable investments in LTE, broadband and fiber in order to provide additional capacity and ramp up Internet and wireless networks. The LTE network has the highest penetration rate of 91% in the North American region. This in turn will help wireless equipment manufacturers.

The impending 5G boom is likely to propel the wireless industry to newer heights. The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support anticipated growth in data services.

In this regard, Internet of Things (IoT) has the potential to emerge as the numero uno factor for future growth in the space. Statista’s 2018 report on global telecom estimates that global telecom services revenues will reach around $1.5 trillion in 2019.

Additionally, the corporate tax rate has been lowered from 35% to 21%., marking the its lowest in 78 years. Trump’s tax cut resulted in a huge windfall for wireless operators. The carriers can utilize this money for 5G network R&D and its deployment. This will naturally bolster demand for wireless equipment.

U.S. Tariffs on Chinese Imports

Trump administration is deeply concerned about China’s drive to unseat the United States as the primary developer and supplier of products in the fields of high-tech artificial intelligence, semiconductors, quantum computing and various other digital technology driven sectors.

So far, the U.S. government has imposed tariffs worth of $250 billion on Chinese goods. Most of these products fall in high-tech industrial sectors. U.S. companies that rely on Chinese imports are unhappy about the move as it will raise prices of wireless equipment and several electronics products for the IT sector. However, a hike in product prices will certainly help wireless equipment manufacturers.

Performance of Major Wireless Equipment Makers

Year to date, stock price of seven major wireless equipment manufacturers, Motorola Solutions Inc. (MSI - Free Report) , LM Ericsson (ERIC - Free Report) , Nokia Corp. (NOK - Free Report) , Mitel Networks Corp. , Comtech Telecommunications Corp. (CMTL - Free Report) , Juniper Networks Inc. (JNPR - Free Report) and Ubiquiti Networks Inc. outperformed the benchmark S&P 500.

Bottom Line

A growing U.S. economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged wireless service providers to undertake large network extensions while upgrading plans. This in turn has provided a boost to the demand for telecom infrastructure developers, particularly wireless equipment makers.

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