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Telecom Stock Roundup: Qualcomm, Motorola Trump Earnings Estimates & More

Supriyo Bose

In the past five trading days, telecom stocks flattered to deceive as the initial uptrend driven by better-than-expected earnings was replaced by a gradual decline later in the week, triggered by a sudden breakdown in the bilateral trade talks with China. As the equity markets reeled under the likelihood of a fresh tariff regime, telecom stocks mirrored the broader market sentiments with uncertainty creeping in the sector.

Both the United States and China appeared to be close to reaching a sweeping trade deal that would end the skirmishes between the two countries and resolve the nine-month old trade war that disrupted supply chains and weighed on the global economy. However, despite numerous rounds of high-level trade negotiations between the U.S. treasury secretary Steven Mnuchin and Trade Representative Robert Lighthizer with a Chinese delegation led by vice premier Liu He, a consensus decision was not reached.

Although the White House had then qualified the talks as encouraging and ‘making good headway’, China reportedly backtracked on most of the thorny issues and the trade talks fell flat. With no imminent breakthrough evident, the Trump administration is set to increase tariff on $200 billion worth of Chinese imports from 10% to 25%. Additional tariffs on $325 billion worth of imports from the Communist nation are also on the anvil. This is likely to trigger retaliatory tariffs from China as well, increasing tensions between the superpowers.  

Meanwhile, the U.S. government continued to up the ante against Chinese telecom firms as a senior official claimed that no executive order from Trump is necessary to explicitly ban Huawei from developing 5G networks across the country. He further backed the claim through support from the leading U.S. telecom service providers as they vouched to shun Huawei from their 5G build-out plans. The Federal Communications Commission is also slated to vote on an order to prevent China Mobile USA, a subsidiary of China Mobile, from providing telecommunications services in the United States.

Regarding company-specific news, quarterly earnings primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     Qualcomm Incorporated QCOM reported solid second-quarter fiscal 2019 results with the top and bottom line beating the respective Zacks Consensus Estimate. The chip maker’s financial performance was driven by strength in both the operating segments owing to strong product leadership and operating expense management.

Quarterly non-GAAP net income came in at $932 million or 77 cents per share compared with $1,154 million or 78 cents per share in the year-ago quarter. Non-GAAP earnings per share for the reported quarter exceeded the guidance of the company and comfortably beat the Zacks Consensus Estimate by 6 cents. Non-GAAP revenues came in at $4,884 million compared with $5,190 million in the year-ago quarter, surpassing the consensus estimate of $4,805 million. (Read more: Qualcomm Q2 Earnings Beat Estimates, Revenues Down)

2.    Motorola Solutions, Inc. MSI started 2019 on a positive note with record first-quarter revenues, operating earnings and backlog, driven by strength in both segments and diligent execution of operational plans. The company remains well poised to continue its growth momentum throughout the year with healthy demand across its portfolio.

Non-GAAP earnings per share were $1.28 compared with $1.10 in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 13 cents. Quarterly net sales were record high at $1,657 million compared with $1,468 million in the year-ago quarter, primarily driven by growth in both the segments. The top line exceeded the Zacks Consensus Estimate of $1,630 million. (Read more: Motorola Outpaces Q1 Earnings & Revenue Estimates)

3.   Arista Networks, Inc. ANET reported solid first-quarter 2019 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year. Despite seasonality issues, the strong quarterly performance signified the resilient business model and diligent execution of operational plans.

Quarterly non-GAAP net income came in at $187.7 million or $2.31 per share compared with $134.1 million or $1.66 per share in the year-ago quarter. The bottom line beat the consensus estimate by 24 cents. Quarterly total revenues increased 26% year over year to $595.4 million and was at the higher end of the company’s guidance of $588-$598 million, driven by healthy overall demand with strength across the business, particularly in the cloud titans vertical. The top line surpassed the Zacks Consensus Estimate of $594 million. (Read more: Arista Outpaces Q1 Earnings and Revenue Estimates)

4.    Altice USA, Inc. ATUS reported healthy first-quarter 2019 results with improved subscriber trends and EBITDA growth. Both the top line and the bottom line increased year over year. The company is benefiting from its investments to improve customer experience and deliver advanced connectivity services, business solutions and high-quality content.

Adjusted earnings were 14 cents per share, which comfortably beat the Zacks Consensus Estimate by 10 cents. Total revenues increased 2.9% year over year to $2,396.6 million driven by growth across residential, business services and advertising operations. The top line, however, lagged the Zacks Consensus Estimate of $2,407 million. (Read more: Altice Q1 Earnings Outpace Estimates, Revenues Lag)

5.     Sprint Corporation S reported tepid fourth-quarter fiscal 2018 financial results, wherein the top line surpassed the Zacks Consensus Estimate but the bottom line missed the same. The company reported wider-than-expected loss for the quarter despite higher revenues.

Quarterly net loss was $2,174 million or loss of 53 cents per share against net income of $69 million or 2 cents per share in the year-ago quarter. The sharp decline was primarily attributable to a non-cash goodwill impairment charge of $2 billion. The bottom line was wider than the Zacks Consensus Estimate of loss of 2 cents. Quarterly total net operating revenues increased to $8,441 million from $8,083 million in the year-ago quarter driven by higher wireless revenues. The top line surpassed the Zacks Consensus Estimate of $8,171 million. (Read more: Sprint's Q4 Loss Wider Than Expected, Revenues Beat)

Price Performance

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, SBA Communications was the biggest gainer with its share price increasing 2% while Juniper Networks was the largest decliner with its stock down 4.2%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 35.5%, while Sprint was the biggest decliner with its shares falling 8.4%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 2.4% while the S&P 500 rallied 5.4%.



What’s Next in the Telecom Space?

In addition to product launches and deployment of 5G technologies, all eyes will remain glued to how other industry participants fare in the earnings season and the fallout of the new tariffs.

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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
 
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
 
Sprint Corporation (S) : Free Stock Analysis Report
 
Altice USA, Inc. (ATUS) : Free Stock Analysis Report
 
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