In the past five trading days, telecom stocks largely went downhill as optimism over a likely long-term solution to the trade war was marred by legal spats between Chinese telecom equipment manufacturer Huawei and the U.S. and Canadian governments. Moreover, although the United States and China reportedly inched closer to a landmark trade deal, the industry awaited further clarity regarding the fine prints and its domino effect. To add to woes, uncertainty in the domestic market crept in with the Democrats aiming to reinstate the repealed ‘net neutrality’ rules.
With significant headway in the bilateral trade negotiations, President Trump has dropped plans to raise the tariff rate on $200 billion worth of Chinese imports from 10% to 25%. A formal agreement to end the trade skirmishes is likely to be inked at a probable meeting between the top leaders of both the countries in late March. In the meantime, efforts are being made to resolve some lingering issues on China’s subsidies, cyber theft, public sector enterprises and so-called forcible technology transfers. However, with no official statements, the industry awaits further clarity on policy issues and its aftereffect. Moreover, ambiguity prevailed about whether or not a deal will be signed with Trump predicting that there would either be a “good deal” or “no deal at all”.
On the other hand, tense undercurrents persisted as Huawei sued the Canadian government, its border agency and the national police force for unlawful detaining, searching and interrogation of its CFO Meng Wanzhou. In a suit filed in the British Columbia Supreme Court, the lawyers appearing for Meng alleged a political conspiracy to undermine the meteoric rise of the company and its prowess in the 5G domain. The latest saga was probably triggered by the approval of the Canadian Justice Department to go ahead with the extradition proceedings of Meng. Huawei further upped the ante against the Trump administration by filing a suit in the U.S. District Court in Plano, TX, challenging its authority for barring federal agencies from buying Huawei equipment and services without any valid evidence against any wrongdoing.
Meanwhile, Democratic lawmakers have introduced bills in both the House and Senate to reinstate the net neutrality rules that the Federal Communications Commission had repealed in 2017. Titled ‘Save the Internet Act’, the bills aim to discourage blocking or throttling content and consider Internet access as a “utility” under Title II of the Communications Act. Although the bills are likely to pass the House, stiff resistance is expected in the Senate where Republicans hold the majority. Moreover, the bills are likely to be vetoed by Trump as he had been vocally skeptical of net neutrality in the past, further blurring the prospects of a smoother sail.
Regarding company-specific news, acquisitions, strategic restructuring, collaborations and earnings primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. In a concerted effort to expand its product offering and augment cybersecurity platform, Verizon Communications Inc. (VZ - Free Report) has completed the acquisition of ProtectWise, Inc. for an undisclosed amount. The transaction is likely to facilitate Verizon to build an ecosystem that enables superior endpoint-to-network visibility and eliminate threats.
Based in Denver, CO, ProtectWise offers cloud-delivered Network Detection & Response to detect and promptly respond to security threats. Seamlessly integrating with other existing security products, it focuses on the network level to observe attacks and trace them back to the source, considerably reducing the time to detect and respond to these. The acquisition will help Verizon to boost its enterprise security portfolio, underscoring the ease and cost-savings of an on-demand deployment model for consolidated multiple, disconnected point products. (Read more: Verizon Boosts Network Detection With ProtectWise Buyout)
2. AT&T Inc. (T - Free Report) has decided to restructure its WarnerMedia business to focus more on video streaming service and fine tune its operating model with the evolving needs of customers. The strategic move will equip the company to play catch-up with avant-garde media firms like Netflix and Walt Disney to secure a bigger pie of the digital advertising market.
As part of the overhaul process of the newly minted WarnerMedia unit, AT&T will consolidate all its affiliates and ad sales groups under a unified platform, with its units organized under entertainment networks, live programming, content production and affiliate and advertising sales. AT&T has also reorganized the management structure within WarnerMedia to rein in the changes. (Read more: AT&T Restructures WarnerMedia to Focus on Streaming Content)
3. United States Cellular Corporation (USM - Free Report) has inked a multi-year agreement with Nokia Corporation (NOK - Free Report) to upgrade its 5G network and offer superior end-to-end 5G technologies, software and services solutions to customers. The strategic deal will enable U.S. Cellular to tap new customer segments, driving the transition of global enterprises to smart virtual networks by creating a single network for all services.
The contract is a culmination of the various 5G trial activities undertaken by both the companies over the past year. Per the deal, Nokia will modernize and develop a 5G network based on its commercial AirScale radio platform and a cloud-based network architecture, using 5G capabilities compliant with 3GPP 5G New Radio standards. This, in turn, will facilitate U.S. Cellular to offer new services with a 5G-ready network and gain additional customers, thereby augmenting its revenues. (Read more: U.S. Cellular Inks 5G Network Modernization Deal With Nokia)
4. Juniper Networks, Inc. (JNPR - Free Report) announced that it has entered into an agreement to acquire Mist Systems for approximately $405 million. Based in Cupertino, CA, Mist is a leader in cloud-managed wireless networks, powered by artificial intelligence.
The acquisition will likely boost the computer network equipment maker’s enterprise networking portfolio by integrating Mist’s Wireless LAN platform with Juniper’s wired LAN, SD-WAN and security solutions. The integration will provide unparalleled user and IT experiences. (Read more: Juniper to Boost Enterprise Networking With Mist Buyout)
5. Ciena Corporation (CIEN - Free Report) reported healthy first-quarter fiscal 2019 (ended Jan 31, 2019) financial results wherein both the top line and bottom line improved year over year. This was driven by solid execution of operational strategies, including diversifying business and leveraging global scale.
On a GAAP basis, net income for the quarter was $33.6 million or 21 cents per share against net loss of $473.4 million or loss of $3.29 per share in the year-ago quarter. The year-over-year improvement was primarily backed by top-line growth and lower provision for income tax. Quarterly total revenues increased 20.5% year over year to $778.5 million, primarily due to higher product sales. (Read more: Ciena Swings to Earnings in Q1 on Higher Revenues)
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 3.2% while AT&T was the biggest decliner with its shares down 4.2%.
Over the past six months, SBA Communications Corporation has been the best performer with its stock appreciating 12.7% while Qualcomm declined the most with its shares falling 32%.
Over the past six months, the Zacks Telecommunications Services industry has declined 2.3% while the S&P 500 fell 2.8%.
What’s Next in the Telecom Space?
In addition to product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China continue their negotiations for a long-term solution to the trade war.
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