In the past five trading days, telecom stocks flattered to deceive as an initial uptrend was replaced by a gradual decline. This was primarily led by investors’ apprehension about the resumption of a bitter high-tech Cold War with China that was apparently on pause.
As President Trump offered a 90-day truce to his Chinese counterpart on the sidelines of the G20 summit in Argentina, telecom stocks inched up on expectations of fruitful negotiations related to the tariff war. However, the stock euphoria soon sizzled out on news that Meng Wanzhou, the chief financial officer of Huawei, was arrested in Canada and faced probable extradition to the United States over potential violations of sanctions on Iran. Serving as the deputy chairwoman of the management board, Meng is the daughter of the founder of Huawei, the leading telecom manufacturer in China. Consequently, the detention and eventual arrest of such a high-profile business tycoon rattled the markets and put the political environment on high alert.
Time and again, the U.S. administration has asked federal agencies to abstain from using China's ZTE and Huawei products over perceived risk of espionage. The Pentagon has also banned the sale of smartphones from these manufacturers from all military establishments. The U.S. officials had even reached out to allied countries to persuade them from refraining to use Huawei telecom equipment, accusing it of sophisticated and intensified cyberattacks to siphon off data for possible collection and analysis.
Although the underlying issue is cited to be related to national security concerns, the bone of contention perhaps stems from an innate desire between the two warring nations to claim dominance in cutting-edge technologies and the next generation of wireless services. It remains to be seen how the latest saga unfolds and whether it stalls the roll-out of the peace process to end the prolonged trade war.
Regarding company-specific news, technology collaborations, 5G deployment, earnings and strategic insights took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. In order to gain a first mover advantage in the 5G race, Verizon Communications Inc. (VZ - Free Report) has announced plans to launch commercial 5G smartphones in the market in first-half 2019 in collaboration with electronics firm Samsung.
The Samsung 5G smartphones will leverage the flagship Qualcomm Snapdragon Mobile Platform with the Snapdragon X50 5G NR modem developed by QUALCOMM Incorporated (QCOM - Free Report) and antenna modules with integrated RF transceiver, RF front-end and antenna elements. These will help smartphones to immediately benefit from the speed and capacity of Verizon’s 5G Ultra Wideband network. (Read more: Verizon Seeks First Mover Advantage With Samsung 5G Phones)
2. AT&T Inc. (T - Free Report) recently offered some key insights into its corporate strategy as to how it plans to better serve customers through an integrated product portfolio, while maintaining a leading position in both these market categories.
In order to generate incremental revenues, AT&T plans to introduce subscription video on demand (SVOD) service in WarnerMedia in 2019 along with an advertising-supported video on demand service in the near future. With a three-tier service, including an entry-level movie-focused package, a premium service with original programming and blockbuster movies, and a bundled service package with content from the first two along with an extensive library of licensed content, SVOD is likely to complement WarnerMedia adeptly. This, in turn, is likely to expand its customer base and open up other avenues to monetize content by leveraging data and analytics to create focused advertising messages. (Read more: AT&T Offers Future Strategic Insights: Key Notes to Consider)
3. Following a 90-day trade war truce, China’s President Xi Jinping offered an olive branch to Qualcomm, indicating that its $44 billion deal to acquire NXP Semiconductors N.V. could be considered for approval if resubmitted.
A Reuters report, however, claimed that although Qualcomm appreciated the renewed offer as a positive development for U.S. firms, it would rather not contemplate rebidding and would prefer moving ahead than considering an already closed chapter. (Read more: Qualcomm Rejects Renewed NXP Bid Offer on Trade War Truce)
4. Finisar Corporation (FNSR - Free Report) reported tepid second-quarter fiscal 2019 results (ended Oct 28, 2018), wherein both the bottom line and top line decreased year over year although the former beat the Zacks Consensus Estimate while the latter missed the same.
Non-GAAP net income improved to $30.6 million or 26 cents per share from $26.1 million or 23 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents. Quarterly revenues decreased 2% year over year to $325.4 million, primarily due to lower revenues associated with 10-gig and Ethernet transceivers. The top line lagged the Zacks Consensus Estimate of $328 million. (Read more: Finisar's Q2 Earnings Beat, Revenues Decline Y/Y)
5. Zayo Group Holdings, Inc. (ZAYO - Free Report) has announced that it is augmenting a new long haul fiber ring in the U.K. that will allow its customers to traverse the country through direct and low-latency paths. This move is in line with its strategy to expand fiber footprint globally while meeting the escalating demand from multiple tenants.
The project entails advanced, high-count and ultra-low loss fiber types and is built over the shortest physical paths. It will provide customers with maximum scalability and throughput, and is expected to be completed in less than 12 months. It involves 500-kilometer ring, including new build, which will provide access to the U.K.’s latest subsea cable crossings in both the Irish and North Seas. Also, the company will enhance the overall fiber count on its existing U.K. network and add two new unique routes, spanning from coast-to-coast, in order to complete the ring. (Read more: Zayo to Augment Long Haul Fiber in UK to Meet Demands)
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, Qualcomm was the biggest gainer, with its share price increasing 1.9%. Juniper Networks, Inc. (JNPR - Free Report) was the major decliner, with its stock losing 3.7%.
Over the past six months, Verizon has been the best performer with its stock appreciating 15.6% while Harris Corporation (HRS - Free Report) and AT&T declined the most, with both shares falling 10%.
Over the past six months, the Zacks Telecommunications Services industry gained 0.8% while the S&P 500 fell 3.1%.
What’s Next in the Telecom Space?
In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China approach the Huawei issue and set the ball rolling for possible start to negotiations for the prevailing trade war.
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