The past five trading days saw continuing bloodbath for telecom stocks as markets went into a tailspin on apprehensions of a global economic slowdown owing to the coronavirus. Despite strict quarantine steps and other safety measures, there seemed to be no respite from the deadly disease, as the industry battled a ‘supply shock’ caused by factory shutdowns and travel restrictions.
With the death toll in the United States swelling to 36 amid 1,215 confirmed or presumptive positive cases, the markets appeared shaky as more and more investors began parking their money in the safe haven of government debt. The pandemic has disrupted normal business operations and supply-chain mechanisms of various telecom companies as they preferred to exercise caution and put on hold their delivery schedules to and from China and other countries like South Korea until the health risks are neutralized. This, in turn, has triggered insecurity within the industry, inducing a downtrend.
Meanwhile, President Trump has signed the Secure and Trusted Communications Networks Act of 2019. The bill includes $1 billion in funding to help smaller rural telecoms to “rip and replace” existing equipment from manufacturers like Huawei that are deemed to be a threat to national security interests. The lawmakers are further planning to introduce a bill to prevent Huawei from accessing U.S. banks for certain transactions, thereby making it extremely difficult for the firm to carry out most dollar-designated business dealings. This is likely to take a heavy toll on Huawei as it struggles with the coronavirus-led demand and supply constraints.
The Trump administration has also postponed, for the second time in a row, a scheduled meeting with the top officials in China regarding potential new U.S. restrictions on sales of technology to Huawei due to the virus outbreak. However, the government has offered a reprieve to the beleaguered telecommunication equipment manufacturer by extending a license till May 15, which allows U.S. firms to trade with it. This will likely allow various smaller rural firms that depend on Huawei to trade with it until they totally get rid of its equipment from their networks.
In another notable development, the Federal Communications Commission (FCC) has reportedly raised more than $4.5 billion for the U.S. Treasury through the successful conclusion of Auction 103. Arguably the largest spectrum auction in the U.S. history, it raised more than $7.5 billion in proceeds as telecom providers bid for spectrum licenses in the upper 37 GHz, 39 GHz and 47 GHz bands. Through the auction, FCC opened up about 3,400 MHz of millimeter-wave spectrum for telecom providers for increased 5G deployment.
Regarding company-specific news, business update, collaboration, dividend hike, carbon footprint and earnings primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. AT&T Inc. (T - Free Report) recently debriefed investors about the progress of the company on various metrics, while offering an update on the probable impact of the deadly coronavirus outbreak on its performance.
Allaying investors’ fears, John Stephens, senior executive vice president and chief financial officer, observed that the company expects to witness no significant impact from the coronavirus outbreak. The company remains well poised to continue its 5G momentum as it brings the tally of 5G coverage to 80 cities across the nation to date. Stephens further envisions significant growth opportunities for the company with extensive fiber connectivity and bundled offerings for businesses and consumers. (Read more: AT&T Shares Up on Minimal Coronavirus Impact Expectations)
2. Nokia Corporation (NOK - Free Report) has teamed up with Marvell Technology Group Ltd., a semiconductor company, to develop customized 5G radio access system-on-chip leveraging its ReefShark technology. The alliance underscores Nokia’s commitment to deliver cost-effective and automated 5G network operations, especially at a time when it is aiming to walk the extra mile to revive its faltering 5G business.
Per the deal, Marvell Technology’s industry-leading, multi-core Radio Access Technology applications will be incorporated in Nokia’s AirScale RAN product line with its 5G-backed ReefShark portfolio. Equipped with customized ARM-architecture-based processor chips, this breakthrough innovation aims to deliver a best-in-class customer experience with reduced power consumption and enhanced performance and capacity. (Read more: Can Nokia Revive its 5G Business With Marvell Partnership?)
3. Qualcomm Incorporated (QCOM - Free Report) recently announced a 5% year-over-year hike in its quarterly dividend payout to 65 cents per share or $2.60 on an annualized basis. This is rather encouraging, given the fact that the broader market sentiments were on the downtrend as the coronavirus pandemic fueled apprehensions of a global economic slowdown.
The current hike reflects the inherent financial strength of the company and strong cash flow generated from continued focus on high-margin businesses and healthy execution of operating plans. (Read more: Qualcomm Rewards Shareholders With 5% Dividend Hike)
4. Ericsson (ERIC - Free Report) released a new report, ‘Breaking the energy curve’, where it underscores a unique network-level approach that enables exponential growth of data traffic without increasing energy consumption. This 12-page report outlines the savings that can be achieved by preparing the network with the latest technology solutions, activating energy-saving software, building 5G with precision and operating site infrastructure intelligently.
The company is committed to creating positive impacts on society through technology, the expertise of its employees and partnerships. Ericsson integrates sustainability and corporate responsibility into its strategy to drive business transformation and create value for stakeholders. (Read more: Ericsson Provides Insight on Cost & Carbon Reduction for 5G)
5. Ciena Corporation (CIEN - Free Report) reported healthy first-quarter fiscal 2020 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. Higher segmental revenues on the back of a varied customer base, technology advancements and market share gains drove Ciena’s performance.
Quarterly adjusted net income came in at $81.7 million or 52 cents per share compared with $52.8 million or 33 cents per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 14 cents. Quarterly total revenues increased 7% year over year to $832.9 million on the back of higher segmental revenues and product sales. The top line surpassed the consensus mark of $822 million. (Read more: Ciena Q1 Earnings Beat Estimates, Revenues Rise Y/Y)
The following table shows the price movement of some of the major telecom stocks over the past week and the six-month period.
In the past five trading days, none of the stocks moved up, while CenturyLink has been the biggest decliner with its stock down 35.3%.
Over the past six months, none of the stocks moved up, while Arista was the biggest decliner with its stock falling 49.9%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average loss of 18%, while the S&P 500 declined 8.5%.
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 administration tackles the coronavirus scare and attempts to mitigate its overall impact on the industry.
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