Telecom stocks’ downtrend continued over the past five trading days, as negotiations between high-level officials of the United States and China failed to come up with a consensus agreement on the various stumbling blocks. Investors appear jittery as speculations about the “Phase One” deal being signed off has gained steam, with President Trump threatening to further raise tariffs in a worst-case scenario.
The partial trade accord is widely anticipated to ease the bilateral tensions created by the prolonged trade war. However, the communist nation’s demands to roll back the existing U.S. tariffs cast doubts over a probable signing of an agreement between President Trump and his Chinese counterpart. In addition, various roadblocks related to forced technology transfer and IP protection, along with the lack of clarity on the quantum of U.S. farm products purchase by China on a monthly or yearly basis clouded the negotiation process. While both sides remain intent to reach an agreement at the earliest on domestic compulsions, it appears that the trade war has been rather a ‘two-steps forward, three-steps backward’ affair. This, in turn, has largely dragged the sector down.
Meanwhile, the U.S. administration has extended the deadline for a sweeping ban on trade with Chinese telecom equipment manufacturer Huawei by another 90 days, allowing domestic firms and rural carriers to utilize the window to purchase replacement parts and software. This marks the third such instance when the reprieve was extended since the U.S. Commerce Department added Huawei to the ‘Entity List’ in May, citing national security concerns. At the same time, the government reportedly approved a quarter of nearly 300 license applications by U.S. firms to trade with the beleaguered telecom firm. Although the names of the recipients of trade licenses have been kept under wraps, it is told that only those applications were approved that posed no significant risks to national security.
Company-specific news, government actions, technology collaborations, network modernization and product development have primarily taken the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. Intelsat S.A.’s (I - Free Report) shares declined sharply as the Federal Communications Commission (“FCC”) lent support for the purported move by the Congress to hold public auction for its C-band spectrum. The stock tanked 56.6% in the first two days of the week beginning Nov 18, as investors resorted to panic selling.
Intelsat, along with some other satellite providers, had decided to sell some of the airwaves in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum — widely known as the C-band — in a private auction to raise cash and repay debt. However, several U.S. senators introduced a bill titled the ‘5G Spectrum Act’ that mandated the public auctioning of the C-band to start no later than year-end 2020, and sharing at least half of the proceeds with the FCC. With the FCC Chairman Ajit Pai publicly supporting this view, shares went on a tailspin as the companies were set to lose a significant chunk of legitimate money. (Read more: Intelsat Shares Tank on FCC Call for Public Spectrum Auction)
2. Vodafone Group Plc (VOD - Free Report) has inked an agreement with Alphabet Inc. for an undisclosed amount to shift its data processing and storage facilities to Google Cloud. The deal is likely to facilitate the digital transformation of the company and enhance its service capabilities for superior customer experience.
Vodafone presently aims to bring Neuron within Google Cloud to enable it to host data analytics, business intelligence and machine learning capabilities. This, in turn, is likely to help bring multiple data sources into a standardized format and make its existing software cloud-compatible, thereby enhancing operations. (Read more: Vodafone to Shift Data Processing & Storage to Google Cloud)
3. Ericsson (ERIC - Free Report) recently announced that it has been chosen by MTN South Africa, a leading mobile telecommunications company, as a 5G network modernization supplier. Financial terms of the contract remain undisclosed.
MTN South Africa is upgrading its core network to support 3GPP-compliant 5G Non-Standalone architecture. Per the agreement, Ericsson will supply 5G products and solutions from its Radio Access Network, transport and core portfolios, with rollout expected to begin in 2020. Notably, the companies are working together to develop 5G use cases and applications that will contribute to the digital transformation of industry verticals. (Read more: Ericsson to Modernize MTN South Africa's Network for 5G Era)
4. BlackBerry Limited (BB - Free Report) has announced that its QNX technology will power Arrival’s — a U.K.-based electric vehicle company — autonomous commercial vehicles.
The security software and services company will license its BlackBerry QNX technology, including its cutting-edge QNX SDP 7.0 real-time operating system. Preliminary version of the first electric delivery vans are expected to hit the roads in early 2020. Markedly, BlackBerry’s QNX technology powers more than 150 million vehicles at present. Many of the vehicles use QNX SDP 7.0, which is designed to surpass the most demanding requirements for reliability and performance. (Read more: BlackBerry QNX Technology to Power Arrival's Commercial EVs)
5. Sprint Corporation (S - Free Report) has unveiled a Telecom Infra Project (TIP) Community Lab in a bid to further develop OpenRAN 5G New Radio (NR) solutions. Launched in 2016, TIP is a collaborative telecom community formed to provide enhanced connectivity services to underserved markets through the development of software-based telecom infrastructure.
Located at the company’s headquarters, the lab is one of the 12 TIP Community Labs worldwide. It will host trial and test activities of the TIP OpenRAN 5G NR Project Group. The project is aimed at accelerating the innovation for 2.5 GHz 5G NR to deliver better connectivity and services to customers. Sprint, being the first U.S. wireless operator to become a member of the initiative, mainly focuses on developing sub-6 GHz 5G NR small and macro cells for outdoor and indoor use cases, followed by millimeter wave 5G NR solutions. (Read more: Sprint Unveils Community Lab to Boost OpenRAN 5G NR Project)
The following table shows the price movement of some of the major telecom stocks over the past week and six-month period.
In the past five trading days, Motorola has been the biggest gainer with its share price increasing 2.9%, while Qualcomm has been the biggest decliner with its stock down 5.7%.
Over the past six months, CenturyLink has been the best performer with its stock appreciating 33%, while Arista Networks has been the biggest decliner with its stock down 30.5%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 1.8% and the S&P 500 has rallied 8.2%.
What’s Next in the Telecom Space?
In addition to product launches, strategic deals and 5G deployments, all eyes will remain glued to how the government handles various thorny issues relating to the “Phase One” deal.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>