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Trump Issues National Emergency in Telecom: Likely Gainers

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On May 15, President Donald Trump issued an executive order declaring a national emergency preventing U.S. corporates from using information and communications technology equipment from sources as this “poses an unacceptable risk to the national security of the United States.”

Although the Trump administration is yet name any specific country or company as the intendent target, the Department of Commerce added Chinese telecom behemoth Huawei Technologies and its affiliates to the Bureau of Industry and Security (BIS) Entity List, following the order.

Another Chinese telecom giant ZTE may also face the same fate. Surely, the latest move by the U.S. government will further jeopardize the lingering trade-related disputes between the two countries.

National Security Concerns Dominate Telecom Space

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

Notably, most of the big Chinese manufacturers of these products are fully patronized by the government of that country. These companies pose serious threats to the U.S. economic and military supremacy.  The latest move bears evidence to the fiercely aggressive stance that the U.S. government is taking to protect innovative next-generation products of the U.S. tech giants.

President Trump has given enough indication that his administration will take special interest in the functioning of the telecom industry. Safeguarding the highly valuable patents of the tech-heavy companies from the Chinese dragon is of foremost importance to the American eagle.

Huwaei and ZTE Targeted Earlier

In fact, the U.S. government made AT&T Inc. T drop Huawei smartphones from its offerings while Qualcomm Inc. QCOM was barred from selling its chipsets to either Huawei or ZTE. The Trump administration had barred U.S. companies from selling products to Chinese counterparts due to apprehensions of China spying on Americans utilizing these high-tech products.

On Mar 12, 2018, Trump ordered to immediately prohibit the proposed $117 billion takeover bid of Singapore-based Broadcom Ltd. AVGO for Qualcomm. The government argued that third-party entities, especially, Huawei and ZTE may get access to Qualcomm’s precious patents from Broadcom or at least a stalled R&D activity may result in Qualcomm losing its competitive edge in the next-generation 5G mobile network standard to its Chinese counterparts.

Potential Winners

U.S. companies that rely on low-cost Chinese imports are unhappy about the move as it will raise prices of high-tech equipment and several electronics products for the telecom sector. However, the ban on Chinese equipment will certainly help U.S. wireless equipment manufacturers.

Networking equipment manufacturers such as Cisco Systems Inc. CSCO, Juniper Networks Inc. (JNPR - Free Report) , Digi International Inc. DGII and NETGEAR Inc. NTGR are likely to gain. Moreover, wireless gear makers like Comtech Telecommunications Corp. CMTL, Motorola Solutions Inc. MSI and Infinera Corp. INFN may also benefit. Juniper Networks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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