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Telecom Stock Roundup: Ericsson Powers Connected Vehicle, Knowles' Buyout & More

Supriyo Bose

In the past five trading days, telecom stocks continued to rally as the United States and China reportedly made healthy progress in their trade negotiations and remained poised to ink the “Phase One" deal in early January. The pre-Christmas rally was further buoyed by the proposed tariff cuts by the communist nation to boost the economy. With U.S. firms likely to gain greater market access in China per the partial trade accord, the New Year appears to be quite promising for the beleaguered industry.  

As part of the camaraderie, China has increased its import basket of U.S. agricultural products like soybeans. The latest move follows a pledge by the Asian superpower to purchase $200 billion of U.S. goods over the next two years, including $40-$50 billion of agricultural products each year. In addition, China has decided to cut tariffs on more than 850 goods, ranging from frozen pork to semiconductors from Jan 1, in order to improve its flagging economy.

Notably, the Trump administration had earlier called off a 15% tariff on nearly $160 billion worth of imports from China, including toys, smartphones, laptops and other electronics items. The U.S. government will also halve its 15% levy on $120 billion worth of Chinese import basket, leaving the tariff regime limited to 25% taxes on $250 billion and 7.5% on $120 billion per the “Phase One” deal.

With President Trump hinting to sign a formal agreement with his Chinese counterpart as early as January, the industry is primed to have sunny days ahead.  

On the domestic front, the Senate passed the anti-robocall bill passed in the House earlier this month, paving the way for the President to formally sign it into a law. Dubbed the TRACED Act, for Telephone Robocall Abuse Criminal Enforcement and Deterrence, the bill mandates telecom firms to offer free call-blocking apps to thwart spam calls. The bill gives the FCC (Federal Communications Commission) adequate time to fine robocallers and lets the agency fine offenders without warning them first. The bill also aims to be a long-term deterrent by empowering the agency to work with the Justice Department to penalize criminals.

Furthermore, the Senate passed the Broadband Deployment Accuracy and Technological Availability (DATA) Act that enables the FCC to collect more precise data from wired, fixed wireless, and satellite broadband providers to get a better understanding of the nationwide broadband coverage. This is likely to bridge the urban-rural digital divide and foster the development of high-speed Internet connectivity across the country.
Regarding company-specific news, strategic deal, acquisition, earnings and network upgrade took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.      Ericsson ERIC has joined forces with Microsoft to deliver a comprehensive connected vehicle platform at scale to the market. The Swedish firm is developing its Connected Vehicle Cloud in conjunction with the Microsoft Connected Vehicle Platform.

The combined solution will facilitate automakers to deploy vehicle services like fleet management, over-the-air software updates and connected safety services conveniently while minimizing expenses. Markedly, Ericsson’s Connected Vehicle Cloud connects more than 4 million vehicles across 180 countries, accounting for almost 10% of the world’s connected vehicle market. The platform has been modified to meet car makers’ growing demand for scalability and flexibility alongside connected vehicle service. (Read more: Ericsson Partners Microsoft on Connected Vehicle Platform)
2.    Knowles Corporation KN recently announced the acquisition of MEMS (micro-electro-mechanical systems) microphone Application Specific Integrated Circuit (ASIC) design assets from ams AG. The buyout is expected to help develop avant-garde sensor solutions by leveraging Knowles’ strong foothold in mobile, ear and IoT applications.

The deal comprises the right to obtain ASIC parts, intellectual property and the integration of ASIC design team in Switzerland. The transaction, which has already been closed at a valuation of $58 million, is expected to be accretive to Knowles’ adjusted earnings in first-quarter 2020. (Read more: Knowles Boosts Sensor Solutions With ams AG Asset Buyout)

3.      BlackBerry Limited BB reported healthy third-quarter fiscal 2020 (ended Nov 30, 2019) results on solid revenue growth. The company also is confident of meeting the consensus estimates for fiscal 2020 or even surpassing them based on strong year-to-date performance.

Excluding non-recurring items, BlackBerry recorded non-GAAP earnings of $17 million or 3 cents per share, which surpassed the Zacks Consensus Estimate by 2 cents. Quarterly GAAP revenues increased 18.1% year over year to $267 million. (Read more: BlackBerry Q3 Earnings Beat on Solid Revenues)

4.     CenturyLink, Inc. CTL has been chosen by Braskem to deliver a global software-defined wide area network solution to more than 50 of the latter’s locations across Latin America, North America, Europe and Asia. Braskem is considered to be the largest thermoplastic resins producer in the Americas and the world’s leading producer of biopolymers.

The company will provide Braskem with a network that can deploy branch sites, deliver cost savings with private and public networks, and provide optimized cloud connectivity and application-aware routing. Braskem will, therefore, have the flexibility to leverage diverse network resources and provide faster user access to business applications. (Read more: CenturyLink's Solution to Drive Braskem's Network Performance)

5.     InterDigital, Inc. IDCC has announced that its partner Shared Spectrum Company (“SSC”) has clinched a U.S. Army Small Business Innovation Research contract from the U.S. Department of Defense. SSC was awarded the deal to augment the army tactical communications infrastructure by leveraging the millimeter wave (mmW) technology.

SSC has been entrusted with the responsibility of developing cost-effective communications infrastructure, which will be conducive in Anti-Access and Area Denial environments. The project aims to identify mmW’s capacity to operate in congested environments by examining improvements in modulation and signal processing techniques, and capitalizing on Low-Probability-of-Intercept/Low-Probability-of-Detection and anti-jamming capabilities. (Read more: InterDigital's Ally Wins mmWave Tactical Communications Deal)

Price Performance

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, Arista Networks has been the biggest gainer with its share price increasing 2.3%, while CenturyLink has been the only decliner with its stock down 0.6%.

Over the past six months, AT&T has been the best performer with its stock appreciating 15.3%, while Arista Networks has been the biggest decliner with its stock down 26.1%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 5.2% and the S&P 500 has rallied 10.2%.

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 the various issues relating to the inking of the “Phase One” deal.

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Ericsson (ERIC) : Free Stock Analysis Report
InterDigital, Inc. (IDCC) : Free Stock Analysis Report
Knowles Corporation (KN) : Free Stock Analysis Report
CenturyLink, Inc. (CTL) : Free Stock Analysis Report
BlackBerry Limited (BB) : Free Stock Analysis Report
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