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Telecom Stock Roundup: Ericsson Q2 Earnings Miss, AT&T's IBM Deal & More

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In the past five trading days, telecom stocks witnessed a gradual uptrend after an initial slump on the anticipation of a breakthrough in the elusive trade deal between the United States and China. However, the sluggish pace of negotiation has created an element of uncertainty, which was a dampener for the stocks toward the end of the past week.

Despite ‘constructive’ initial level talks by top-ranked officials, no further details about the venue and the nature of the next level of communication have still been made available. Moreover, it remains uncertain whether the two sides would resume their dialogue from the draft text agreed upon before the pull back or use a different starting point for the proceedings. Nevertheless, a thaw in the Sino-U.S. relationship has buoyed the industry that has borne the brunt of the tariff war and has restored some exchange of goods with one of the most important markets for telecom parts and components.

Further, a bipartisan group of U.S. senators has introduced a bill to prevent any effort by President Trump and his Chinese counterpart to use Huawei as a bargaining chip in the larger trade negotiation landscape. Dubbed the Defending America’s 5G Future Act, the proposed bill aims to restrict Trump from awarding any further concession or relieving its inclusion in the Entity List without the approval of the Congress. The bill seeks to empower Congress to disallow waivers granted to U.S. companies doing business with such companies that are deemed to be potential national security threats.  

A Republican lawmaker introduced another bill to press the administration to boost the presence of U.S. firms in international telecom organizations to curb China’s rising dominance in 5G. The bill urges the government to take necessary steps to improve “representation and leadership” of the country in such forums that set the standards for 5G network. This, in turn, is likely to thwart any attempts by China to gain prominence in the global 5G market and ensure that U.S. vendors do not lose out on competition and are not deprived of “better and cheaper” supply chains.       

Regarding company-specific news, quarterly earnings, strategic collaborations, acquisitions and trial runs primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.    Ericsson (ERIC - Free Report) reported mixed second-quarter 2019 financial results, wherein the top line beat the Zacks Consensus Estimate but the bottom line missed the same.

Non-IFRS earnings came in at SEK 0.59 (6 cents) per share against loss of SEK 0.09 in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by a penny. Quarterly net sales increased 10% year over year to SEK 54,810 million ($5,800.6 million), primarily driven by growth in Networks in North America and North East Asia. The top line surpassed the consensus estimate of $5,721 million. (Read more: Ericsson Q2 Earnings Miss, Sales Up Y/Y, Stock Down)
2.     AT&T Inc. (T - Free Report) has collaborated with IBM to facilitate diverse businesses to harness edge connections and edge computing capabilities.

Per the multi-year strategic alliance, AT&T will leverage IBM’s domain expertise to augment the internal software applications of AT&T Business division for seamless migration to IBM Cloud. In addition to being the primary cloud provider for AT&T Business' operational applications, IBM will help manage its IT infrastructure across different clouds – private and public. This is likely to help AT&T to effectively deploy internal application workloads, while offering state-of-the-art services. (Read more: AT&T Collaborates With IBM to Optimize Core Operations)

3.  T-Mobile US, Inc. (TMUS - Free Report) , Qualcomm Incorporated (QCOM - Free Report) and Ericsson have collaborated to deliver the world’s first low-band 5G data session on a commercial 5G modem. The unique feat is likely to serve as a major landmark in the 5G history of the country, and sow the seeds for delivering the state-of-the-art technology beyond urban areas.

The positive test results are expected to pave the way for advanced multi-mode support for deploying Qualcomm’s 5G modem across any combination of spectrum bands and thereby unlock the full potential of 5G for business enterprises and consumers alike. In addition, the successful use of Ericsson equipment offers a viable alternative to Chinese equipment manufacturer Huawei for nationwide 5G commercialization across different spectrum bands. (Read more: Telecom Firms Collaborate to Deliver 5G on Low-Band Spectrum)

4.     Motorola Solutions, Inc. (MSI - Free Report) recently announced that it has acquired WatchGuard, Inc. — a leading provider of mobile video solutions for law enforcement — for an undisclosed amount.

Markedly, the buyout leverages Motorola’s global footprint and adds new capabilities to its video security solutions portfolio, which includes fixed cameras and advanced analytics from Avigilon as well as license plate recognition cameras and software from Vigilant Solutions. (Read more: Motorola Buys WatchGuard, Expands Mission-Critical Ecosystem)

5.     Viasat, Inc. (VSAT - Free Report) has announced the launch of Community Wi-Fi trials in Brazil, with an aim to help close the country’s digital divide by connecting millions of people to high-quality Internet service.

Per media reports, Internet connectivity is expected to be offered as a free service during this trial program. Markedly, the initiative is focused on providing high-speed, affordable and satellite broadband connectivity to people living in communities that have little or no access to the Internet. (Read more: Viasat's Community Wi-Fi to Help Close Digital Gap in Brazil)

Price Performance

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, Juniper Networks was the biggest gainer with its share price increasing 2.6% while AT&T was the biggest decliner with its stock down 1.5%.

Over the past six months, Motorola has been the best performer with its stock appreciating 32.1%, while CenturyLink was the biggest decliner with its stock down 34.3%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 0.7% while the S&P 500 has rallied 11%.

What’s Next in the Telecom Space?

In addition to product launches, deployment of 5G technologies and the earnings season, all eyes will remain glued to how the United States and China continue their trade negotiations and its cascading effect on the industry.

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