In the past five trading days, telecom stocks mostly witnessed a downtrend after an initial flurry, as both the United States and China resumed trade talks despite the tense undercurrent related to Huawei CFO, Meng Wanzhou. Reassurance from President Trump about his intentions to intervene in the Huawei issue, if required, for the sake of broader national interests, seemed to pacify the markets toward the end of the past week.
The detention and eventual arrest of the deputy chairwoman of the management board of Huawei, a leading telecom manufacturer in China, by the Canadian government at the behest of its U.S. counterpart rattled the markets and put the political environment on high alert. The Sino-American tensions elicited strong protests from China against the perceived undemocratic act and threatened to derail the 90-day truce offer to initiate negotiations related to the tariff war. Although Meng has been granted bail, the matter remained a potboiler as she faced probable extradition to the United States over Huawei’s potential violations of sanctions on Iran.
Meanwhile, the U.S. administration has blamed Chinese hackers for the cyber-attack on Marriott’s Starwood hotels chain that compromised the personal details of 500 million guests. The U.S. authorities also held hackers of the communist nation responsible for the data breach in 2014 of a government agency, which holds personal information for obtaining security clearances. The hackers are suspected to work on behalf of China’s Ministry of State Security and are presumed to gather sensitive information for data-mining exercise for possible collection and analysis, although the latter has refuted the charges.
Amid such dissonance, the U.S. lawmakers are reportedly advancing a bill to ban the sale of components by local companies to Chinese telecom firms that violate sanctions. The move is likely to be similar to an earlier administrative order that asked federal agencies to abstain from using China's ZTE and Huawei products over perceived risk of espionage.
Regarding company-specific news, technology collaborations, acquisitions, guidance and strategic corporate actions took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. In the latest twist to a prolonged legal battle, a court in China has ruled that Apple Inc.-manufactured iPhones have infringed on two patents of QUALCOMM Incorporated (QCOM - Free Report) . Consequently, the judge has issued an embargo on sales of some iPhone models in China although legal experts and intellectual property lawyers remain skeptic of the enforcement of the ban.
The Fuzhou Intermediate People's Court in China held Apple guilty of twin patent infringement and ordered an immediate ban on sales of older iPhone models, from the 6S through the X. Qualcomm will need to file a separate complaint in the enforcement tribunal to enforce the ban as provincial Chinese courts do not have the legal right to do so. Apple will also have the right to defend itself and appeal against the verdict in the enforcement tribunal, which is likely to delay the process and further extend the legal imbroglio. (Read more: Qualcomm Wins Twin Patent Battle in China Against Apple)
2. In order to augment its broad portfolio of software network solutions globally, ADTRAN, Inc. (ADTN - Free Report) has acquired SmartRG Inc. — a Vancouver, WA-based firm that provides carrier-class, open-source connected home platforms and cloud services for broadband service providers. The buyout is part of ADTRAN’s commitment to help its broadband customers to lower operating expenses, and simplify and scale networks while enhancing revenues by creating long-lasting relationships with them.
Notably, SmartRG has more than 3 million devices in service and above 1.3 million devices under management in North America, the Caribbean and South America. The company expects to drive growth through its software solutions as more customers shift from proprietary options to SmartOS — its open-source, cloud-enabled solution suite. The acquisition positions ADTRAN and SmartRG well to capitalize on growing global market trends. (Read more: ADTRAN to Boost Customer Relationship With SmartRG Buyout)
3. Nokia Corporation (NOK - Free Report) in collaboration with China Mobile Research Institute — the research division of China Mobile Limited — introduced the industry's first hybrid indoor radio solution with location services.
The solution is aimed at meeting 5G connectivity demands inside busy and large buildings. The 5G hybrid distributed indoor system will help operators to minimize deployment costs, and it testifies the 5G commercial readiness of Nokia AirScale Indoor Radio portfolio. (Read more: Nokia & China Mobile Launch 5G Hybrid Indoor Radio Solution)
4. Verizon Communications Inc. (VZ - Free Report) has announced that it will write off a majority of its media business — Oath — which includes Yahoo and AOL, due to lower-than-expected performance from the combination of businesses that make up Oath. The telecom giant has decided to take $4.6 billion ($4.5 billion after-tax) charge of the $4.8 billion of Oath’s remaining goodwill balance, related to its media assets in the fourth quarter of 2018.
The company had acquired Yahoo for $4.5 billion in 2017 and AOL for $4.4 billion in 2015. Oath has experienced increased competitive and market pressure throughout 2018 resulting in lower-than-expected revenues and earnings. Management expects this to continue, leading to further loss in market positioning in the digital advertising business. (Read more: Verizon to Write Off Oath and Focus on Networks, Costs Cut)
5. InterDigital, Inc. (IDCC - Free Report) recently provided revenue guidance for fourth-quarter 2018. In addition, the company’s board of directors announced a regular quarterly cash dividend and approved a hike to its existing share repurchase program.
For the fourth quarter, the company expects to report revenues in the band of $70-$76 million. This range incorporates non-recurring revenues of about $1 million. Notably, the company’s projected fourth-quarter revenues would have been in the range of $92-$96 million, under the accounting rules applicable before the adoption of the revenue recognition standard "ASC 606". (Read more: InterDigital Issues Q4 Revenue Guidance, Announces Dividend)
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, Harris Corporation (HRS - Free Report) was the biggest gainer, with its share price increasing 5.4%. AT&T Inc. (T - Free Report) was the major decliner, with its stock losing 1.9%.
Over the past six months, Verizon has been the best performer with its stock appreciating 16.5%, while AT&T declined the most with its shares falling 7.8%.
Over the past six months, the Zacks Telecommunications Services industry has gained 0.9% while the S&P 500 fell 5.5%.
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 continue their negotiations for a long-term solution to the trade war.
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