In the past five trading days, telecom stocks witnessed a relatively flat trajectory as the industry awaited an early resolution to the trade war on the proposed resumption of bilateral trade talks between President Trump and his Chinese counterpart on the sidelines of G20 summit. The improvement in the Sino-U.S. relationship is expected to buoy the industry that has borne the brunt of the tariff war with various trade restrictions affecting the supply chain mechanism and risking business sustainability.
Despite the outreach and visible camaraderie, the Trump administration has initiated a 150-day review process of the U.S. telecommunications supply chain to ensure that 5G equipment used in the country is designed and manufactured outside China. The government is seeking an informal response from various equipment manufacturers to thwart any possible data espionage by eliminating purported attempts by Chinese engineers to insert security holes into technology made in China. The U.S. officials are reportedly mulling to allow the manufacturing of benign analog components, such as power converters and protective cases in the communist nation. But they intend to restrict the same for ‘intelligent’ components that deal with data-intensive applications like cellular-tower hardware, routers and switches.
At the same time, with strict government restrictions still in place for Chinese telecom equipment manufacturer Huawei, several small rural U.S. telecom carriers are considering to tap its rivals Nokia and Ericsson to replace their banned equipment. However, negotiations to switch from low-priced components to pricier alternatives are likely to be fruitful only when the Congress approves $700 million in subsidies for the changeover. The uncertainties have effectively put the sustainability of the rural wireless carriers at stake, risking several jobs.
In order to safeguard their business interests, various U.S. firms have started to circumvent the law to continue trading with Huawei. Leveraging the de minimis rule, various technology firms are supplying components that are manufactured in overseas territories to Huawei. This has offered some respite to the U.S. firms, and assumes added significance as the government continues to expand the curbs on technology export to China.
It remains to be seen how the bilateral negotiations in Osaka, Japan, pan out in the future and eliminate the various stumbling blocks that threaten to derail the global economy, while boosting the beleaguered telecom industry.
Regarding company-specific news, regulatory approval, earnings, collaborations and strategic deals primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. Harris Corporation HRS has secured the final regulatory approval from European Union (“EU”) for its long-pending merger with L3 Technologies, Inc. With this, the all-stock-merger deal is set to close on Jun 29, 2019, paving the way for the formation of one of the largest entities in the U.S. defense industry.
Harris had earlier received mandatory approvals for the transaction from all concerned authorities except the anti-trust regulatory body of the EU. The EU Commission feared that the merger would lead to a monopolistic market for image intensification night vision devices and image intensification tubes, harming competitive and fair-trade practices. In order to clear the last stumbling block, Harris sold its Night Vision business to Elbit Systems of America, LLC for $350 million in cash. This cleared the path for the final regulatory approval for one of the largest mergers in the defense industry. (Read more: Harris-L3 Merger Gets Regulatory Nod, L3Harris Set for Debut)
2. BlackBerry Limited BB reported healthy first-quarter fiscal 2020 (ended May 31, 2019) financial results. This was primarily driven by growth in software and services business, and lower total operating expenses, which helped narrow GAAP net loss on a year-over-year basis.
Non-GAAP net income came in at $5 million or 1 cent per share and matched the Zacks Consensus Estimate. Non-GAAP revenues were $267 million compared with $217 million in the year-earlier quarter. The top line surpassed the consensus estimate of $249 million. (Read more: BlackBerry's Q1 Earnings Match Estimates, Revenues Beat)
3. AT&T Inc. T recently collaborated with Hewlett Packard Enterprise Company to facilitate diverse businesses to harness edge connections and edge computing capabilities to push their boundaries to new frontiers. The deal seems to be the call of the hour with increased 5G deployments giving rise to large quantum of data.
Together, the companies aim to offer a flexible tool to better analyze data and process low-latency, high-bandwidth applications. The go-to-market alliance particularly intends to enable customers to swiftly convert data into actionable intelligence, enabling unique digital experiences and smarter operations. (Read more: AT&T Harnesses Edge Capabilities With Hewlett Packard Tie Up)
4. CommScope Holding Company, Inc.’s COMM business unit, ARRIS, recently announced that SaskTel has chosen ARRIS HomeAssure solution to provide top-tier Wi-Fi services to broadband customers across Saskatchewan, Canada. SaskTel is a leading information and communications technology provider in the region.
The avant-garde solution helps in delivering high-quality Wi-Fi experience coupled with improved coverage and performance, while automatically optimizing the home network. It also facilitates set-up for the increasing number of Wi-Fi devices and applications in subscribers’ home. In unison with ARRIS’ broadband gateways and extenders, the solution will likely operate to cover homes in fast, reliable Wi-Fi. (Read more: CommScope's ARRIS HomeAssure Solution Chosen by SaskTel)
5. Motorola Solutions, Inc. MSI has secured a tender to provide The Israel Railways Company with an advanced push-to-talk over cellular (POC) communication solution, which will enhance operational efficiency and passenger safety.
Per the deal, the communications equipment maker will supply, install, operate and maintain the POC-based wireless communications system for Israel Railways for three years, with an optional extended period of five years. Hot Mobile will be the mobile network carrier for this project. Notably, the solution will replace the railway company’s prior communication service, Mirs, which was based on Integrated Digital Enhanced Network technology. (Read more: Motorola to Boost Israel Railways' Operational Efficiency)
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, Qualcomm was the biggest gainer with its share price increasing 4.2% while Sprint was the biggest decliner with its stock down 13.6%.
Over the past six months, Motorola has been the best performer with its stock appreciating 31.9%, while none of the stocks declined.
Over the past six months, the Zacks Telecommunications Services industry has recorded an average growth of 3.7% while the S&P 500 has rallied 16%.
What’s Next in the Telecom Space?
In addition to product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China embrace the fresh round of trade negotiations and its spiraling effect on the industry.
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