Despite stringent restrictions to supply component and software to Chinese telecom equipment manufacturer Huawei, InterDigital, Inc. (IDCC - Free Report) expects to continue licensing 5G networking technology for seamless rollout of superfast 5G networks across the communist nation. Qualcomm Incorporated (QCOM - Free Report) is also expected to remain unaffected by the ban, and is likely to continue licensing its patented technology to Huawei without any restrain.
Last week, the U.S. President signed a long-awaited executive order to declare national emergency. Although the order was company and country agnostic, it effectively barred U.S. firms from either buying or selling any telecom equipment to firms like Huawei that are deemed to pose national security risks, virtually crippling its operations. The directive invoked the International Emergency Economic Powers Act, which bestowed the President with the authority to regulate commerce in view of the national emergency that threatened the country.
The U.S. Commerce Department immediately added Huawei along with 70 of its affiliates to the Entity List – a list of entities that are ineligible to receive any item without the government approval. This mandated U.S. suppliers to apply for licenses to provide components to the Chinese firm. These licenses are likely to be subjected to strict U.S. export control regulations, and companies will need to justify that the transfer of such items will not jeopardize national security, making their obtainment extremely difficult. Although the administration has eased some of the restrictions for 90 days, several U.S. firms fear that their normal business operations would get hampered by strict government control.
On its part, InterDigital generates significant revenues by developing wireless technologies and subsequently licensing the patents of such technologies to third parties. The company expects to face no threat from licensing its patented technology to Huawei, as export control laws do not cover patents as they are widely available in public domain and are not confidential technology secrets. Notably, Huawei is one of the biggest customers of InterDigital, accounting for 14% of total revenues in 2017.
Trade attorneys have also corroborated that Qualcomm is likely to face no objection from government authorities while licensing its patented technology to Huawei in the future. The chip manufacturer had a patent deal with the Chinese firm since 2014, but Huawei reportedly stopped paying the licensing fees from 2017. With recent trade restrictions and resultant tariff war, Qualcomm expects to amicably solve the issues related to payment dues and maintain its business relationship with Huawei.
Both InterDigital and Qualcomm carry a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Harris Corporation and Juniper Networks, Inc. (JNPR - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank(Strong Buy)stocks here.
Harris has a long-term earnings growth expectation of 8%. It beat earnings estimates in each of the trailing four quarters, the average being 3%.
Juniper has a long-term earnings growth expectation of 6.2%. It surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 15.4%.
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