In the past five trading days, telecom stocks witnessed a gradual uptrend despite tense undercurrents related to the tariff war. With the Trump administration temporarily easing some trade restrictions on Chinese smartphone manufacturer Huawei, the industry appeared to be on firm footing and remained well poised to minimize any potential supply-chain disruption. As the tariff war virtually leads to intense technology warfare between the two superpowers of the global economy, the industry is likely to get polarized into two distinct halves, with the U.S. firms apparently holding a slight advantage due to their technological supremacy.
Last week, Trump had signed an executive order to declare national emergency that 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. 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.
However, the government later offered a 90-day window till August 2019 to Huawei to enable it purchase components from U.S. suppliers to fulfill its commitments for existing products. The temporary relief is primarily intended to aid U.S. telecom service providers, which rely on Huawei equipment, to chalk out alternate arrangements and avoid any market disruption. Estimates reveal that out of $70 billion spent by Huawei in 2018, U.S. firms reportedly received $11 billion. The current restrictions will, however, remain in force for any new and upcoming products from the stable of the Chinese firm.
Responding to such stringent actions and in order comply with the U.S. government sanctions to prevent alienation, several European firms are following suit and are either suspending their deals or cancelling pre-orders. Carriers in South East Asian countries in Japan and Taiwan have also shelved future orders for new smartphone models from Huawei. This could jeopardize 5G rollout schedules in various countries as it would involve getting rid of cheaper Huawei networking equipment and build newer ones from scratch. Meanwhile, the U.S. lawmakers have introduced a bill to provide up to $700 million to the telecom carriers (particularly in rural areas) to replace such equipment that are deemed a security risk.
Regarding company-specific news, efforts to bypass trade ban, merger clearance, strategic investments and contracts primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. 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.
InterDigital 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. 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. (Read more: Interdigital, Qualcomm Expect to Bypass Huawei Trade Ban)
2. It seems like T-Mobile US, Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) are leaving no stone unturned to win regulatory clearance for their $26.5 billion merger. The third- and fourth-largest U.S. wireless carriers (by subscriber count) are reportedly going to announce commitments to the federal government, including asset sales and rural-service guarantees. The move is expected to help them in obtaining approval for their pending merger.
Per media reports, they are now planning to promise the sale of one of their prepaid brands, a three-year buildout of 5G network and a reiterated pledge to not increase prices while the network is being built. Markedly, the new promises would follow talks with the Federal Communications Commission. (Read more: T-Mobile & Sprint Strive to Achieve Pending Merger Approval)
3. Recently, Nokia Corporation (NOK - Free Report) announced that it has been chosen by Ooredoo Qatar — a leading telecommunications company — to build the latter’s 5G cloud native core network in Doha for improved mobile broadband services to customers.
Nokia’s comprehensive 5G portfolio is likely to provide Ooredoo’s customers with ultra-high bandwidth and low-latency services, alongside new applications in areas like virtual reality, augmented reality and AI. Enterprises are also likely to gain from various IoT vertical use cases enabled by 5G as it will help enhance operational efficiency and user experiences while providing new revenue streams. (Read more: Nokia Partners with Ooredoo Qatar to Build 5G Core Network)
4. TELUS Corporation (TU - Free Report) has announced that it is going to invest $53 million in its wireless and wireline networks in Greater Montreal this year. The move is in accordance with its five-year billion-dollar pledge in Quebec. It is aimed at helping Montreal to become one of the smartest cities in Canada, while paving the way for the impending 5G technology across the region.
These investments are part of a 20-year partnership between TELUS and the Old Port of Montréal Corporation, announced in 2017, to provide the location with a number of cutting-edge technologies and a free high-speed Wi-Fi zone. The company also stated that it would deploy Centralized Radio Access Network technology to enhance the performance of its Long Term Evolution-Advanced wireless network. (Read more: TELUS to Invest $53M in Greater Montreal Networks This Year)
5. Harris Corporation announced that it has secured a $284 million ground segment contract extension from the National Oceanic and Atmospheric Administration (“NOAA”), for Geostationary Operational Environmental Satellite - R Series weather satellites.
Markedly, the three-year agreement is aimed at modernizing the ground-computing infrastructure and reducing the IT footprint, while laying the foundation for migration to cloud technologies. The move extends the partnership with NOAA’s National Environmental Satellite, Data and Information Service to 13 years and brings the total contract value to $1.65 billion. (Read more: Harris Secures $284M Satellite Contract Extension From NOAA)
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, Sprint Corporation was the biggest gainer with its share price increasing 9% while Qualcomm was the biggest decliner with its stock down 24.5%.
Over the past six months, Harris has been the best performer with its stock appreciating 22.6%, while Juniper was the sole decliner with its shares falling 7%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 2.1% while the S&P 500 rallied 6.4%.
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 respond to the tariff war.
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