The U.S. telecom stocks largely moved up in unison with the benchmark S&P 500 index in the past week, as the government continued its relentless pursuit to keep China-backed firms out of its telecom network in order to lend support to domestic telecommunication companies. The confidence-building administrative efforts to set guardrails and legislations to safeguard the interests of the industry seemed to propel the stocks amid disruptions caused by the coronavirus pandemic. However, a Senate report that claimed that the government failed to have proper supervision of China-owned telecom firms for nearly two decades acted as a dampener of sorts toward the end of the past week.
The bipartisan report released by the Senate Permanent Subcommittee on Investigations revealed that there were certain lapses by the Federal Communications Commission (FCC) and ‘Team Telecom’ — an informal group drawn from the departments of Justice, Homeland Security and Defense to oversee foreign telecom companies. The report alleged that a lack of thorough diligence and shortcomings allowed the Chinese government-backed firms to gain a foothold in the U.S. telecommunications industry and compromised national security through cyber espionage and potential data hacks. It further pointed out that U.S. firms lacked similar reciprocal access in the communist nation, subtly hinting that state-controlled Chinese firms should also be debarred from the country. Responding to the gravity of the situation, China Telecom and China Unicom have urged the FCC not to revoke the authorization to operate in the United States.
Meanwhile, the FCC voted to commence auction procedures from late October this year to offer about $16 billion to areas that do not possess optimum broadband connectivity, including nearly 6 million unserved rural homes and businesses. The auction process mandates applicants to provide voice and broadband services in unserved locations in exchange for monthly payments over a 10-year period. The proposal is likely to even encourage firms with low earth orbit satellites to develop a low-latency, broadband Internet system.
In another significant development, a bipartisan group of lawmakers has introduced a bill to provide about $22.8 billion to semiconductor manufacturers for setting up factories in the United States. The strategic bill aims to spur the construction of ICs within the country to reduce dependence on offshore production facilities of Taiwan Semiconductor Manufacturing Co. Notably, Intel and Taiwan Semiconductor have already set the ball rolling to set up manufacturing plants in the United States to prevent any supply-chain disruption in the future.
Regarding company-specific news, strategic deals, quarterly earnings, deployments and collaborations primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. Reinforcing its position as a leading player in the 5G ecosystem, Ericsson ERIC has significantly increased presence in China, which is arguably the largest 5G market in the world. The company has secured 5G contracts from the three major operators in the communist nation and expects to ride on this momentum to fend off stiff competition from rivals.
China's three largest telecom operators — China Mobile, China Telecom and China Unicom — have awarded 5G contracts to Ericsson, thereby strengthening its overall 5G business in the country. Notably, Ericsson has 93 commercial 5G agreements with operators (of which 51 are publicly stated) and 40 live 5G networks in four continents.
2. Corning Incorporated GLW recently made significant headway in its Life Sciences segment as it secured government funding to substantially augment the domestic manufacturing capacity of glass vials for vaccines. In addition to corporate social responsibilities for contributing to the overall cause of vaccination and treatment of COVID-19 patients, the federal funds are likely to help the company strengthen its position as a leading packaging provider in the healthcare segment.
Corning will receive $204 million from the Biomedical Advanced Research and Development Authority (BARDA), which forms part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services. The BARDA funding is obtained under the White House’s Operation Warp Speed Initiative that aims to develop, manufacture and distribute an effective coronavirus vaccine.
3. Ciena Corporation CIEN reported healthy second-quarter fiscal 2020 results (ended May 2, 2020), with the top and bottom lines beating the Zacks Consensus Estimate.
Adjusted net income came in at $117.4 million or 76 cents per share compared with $76.2 million or 48 cents in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 25 cents. Quarterly total revenues increased 3.4% year over year to $894.1 million, driven by higher product sales. The top line surpassed the consensus mark of $888 million.
4. AT&T Inc. T announced that its Dynamic Spectrum Sharing (DSS) is currently live in sections of its network coupled with 5G-enabled devices. The company was among the first to present this technology.
DSS is considered an essential milestone on AT&T’s path to nationwide 5G. The software-based technology enables communications service providers to share the same channel between 4G and 5G users simultaneously. It turns up 5G without turning off LTE, thereby creating a seamless experience for customers.
5. Qualcomm Incorporated QCOM recently announced its collaboration with JLC Infrastructure and IGNITE Cities to leverage smart city technology for the development of education and construction industries, as part of its Smart Cities Accelerator Program. Markedly, the program is an undertaking of the tech giant’s much-acclaimed Advantage Network.
Qualcomm’s Advantage Network offers a wide range of programs, which have been specifically designed to cater to the requirements of various companies with best-in-class hardware, software and cloud capabilities. These include Head-Mounted Display Accelerator, XR Enterprise Program and IoT Hardware Accelerator.
The following table shows the price movement of some of the major telecom stocks over the past week and the six months.
In the past five trading days, Qualcomm has been the best performer with its stock appreciating 7.6%, while none decreased.
Over the past six months, T-Mobile has been the best performer with its stock appreciating 29.2%, while CenturyLink was the biggest decliner with its stock falling 28.3%.
Over the past six months, the Zacks Telecommunications Services industry declined 8.1%, while the S&P 500 recorded average gain of 0.6%.
What’s Next in the Telecom Space?
In addition to product launches, deals and 5G deployments, all eyes will remain glued to how the administration attempts to devise pre-emptive steps to thwart Chinese dominance in 5G while safeguarding interests of domestic firms.
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