In the past five trading days, telecom stocks have rallied slowly but steadily on both the United States and China’s positive approach to ease bilateral tensions and pave the way for earlier settlement of trade disputes. The two countries have also agreed to meet in person in October, with vice premier Liu He traveling to the United States for negotiations with treasury secretary Steve Mnuchin and trade representative Robert Lighthizer. However, the bonhomie is likely to be put to test once the two sides sit across the negotiation table.
The communist nation extended an olive branch to the Trump administration by publicizing a short list of U.S. goods from the import basket that will be spared from retaliatory tariffs for a year starting next week. These included items such as cancer drugs, lubricants, pesticides and shrimp meal, while big-ticket commodities like soybeans and other agricultural goods were kept within the tariff list. China further announced that tariffs already imposed on the excluded list would be refunded with additional exemptions on other products on the anvil.
Trump reciprocated by postponing his own set of tariffs that were due to be levied from October by about two weeks as “a gesture of good will”. He announced that a proposed hike in tariff rates from 25% to 30% on $250 billion worth of imports from China would be deferred to Oct 15 at the behest of the vice premier and honor the sentiments of the country that would be celebrating the 70th Anniversary on Oct 1. This, in turn, is likely to offer the negotiators ample time to reconcile their differences and come up with a mutually agreeable solution.
In another positive development, leading Chinese telecom equipment manufacturer Huawei has dropped a lawsuit against the U.S. government after the latter returned goods seized in September 2017. The seized equipment included computer servers, Ethernet switches and other telecom gear that were on its way back to China after being tested in California. However, the Trump administration is still apparently sitting on about 130 applications received by the Commerce Department for issue of licenses for the trade of U.S. goods with Huawei.
Meanwhile, the Federal Communications Commission is reportedly mulling to auction hitherto unavailable mid-band spectrum to telecom carriers, which is likely to accelerate the 5G rollout across the country. The auctioning of 70 MHz of the 3.5 GHz Citizens Broadband Radio Service band in June 2020 will enable the telecom firms to deploy 5G network facilities with fewer cell sites. The mid-band spectrum enables wider coverage compared to mmWave spectrum as its frequency travels further and can better penetrate buildings. This is likely to bridge the digital divide in rural areas and bring 5G coverage across extended areas.
Regarding company-specific news, product launches, acquisitions, technology upgrades and strategic collaborations primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. Qualcomm Incorporated QCOM has revealed that it is planning to develop 5G chipsets that are compatible in mid-priced mobiles to make such devices widely available to masses.
The chips are expected to hit the market next year, likely spurring consumers to upgrade to the super-fast network with increased deployment of 5G technology across the globe. The strategic move is intended to drive higher sales and achieve economies of scale through mass production. In particular, Qualcomm is mulling to add 5G capabilities to its cheaper chipset versions of Snapdragon 6 and 7 series. (Read more: Qualcomm Plans to Offer Low-Priced 5G Chipsets for Masses)
2. CenturyLink Inc. CTL has inked a definitive agreement to acquire privately held firm Steamroot Inc. for an undisclosed amount. The transaction is likely to strengthen its position as a leading provider in content delivery network and reinforces its commitment toward edge computing services.
The acquisition will enable CenturyLink to enrich its video content offerings in bandwidth constrained areas by utilizing edge computing and data driven approach of Steamroot. The buyout is expected to help the company transform its business operations through product evolution and digitizing of customer interactions, thereby combating stiff market competition. (Read more: CenturyLink Buys Steamroot to Boost Content Delivery Network)
3. Ericsson ERIC has inked a deal with wireless carrier Next-Tech Wireless to help it better adapt to the modalities of upgraded network infrastructure to embrace 5G technology. The strategic deal will help Next-Tech Wireless to transform its core network facilities to combat competition as 5G services gradually roll out across the country.
Per the contract, Kansas-based Next-Tech Wireless will deploy Ericsson Fast VoLTE Launch solution – a full-stack industrialized and validated virtual IP multimedia subsystem – to enable HD quality VoLTE, Wi-Fi calling and future-enriched communication services. Ericsson will also provide 3GPP standards-based 5G New Radio hardware and software capabilities along with virtual upgrades of the Cloud Core network. (Read more: Ericsson to Boost Next-Tech Wireless' Network Capabilities)
4. According to media reports, China Telecom Corporation Limited CHA has collaborated with China Unicom (Hong Kong) Limited CHU to mark its foray in the development of 5G networks across the country.
The "co-build, co-share" framework agreement inked between two of the big three state telecom companies is likely to foster a congenial environment for faster deployment of 5G networks through apportioned infrastructure investments. This, in turn, is likely to accelerate the development of 5G networks in China as it strives to match pace with the United States and South Korea that have already rolled out 5G services in select markets. (Read more: China Telecom Collaborates With China Unicom for 5G Network)
5. Verizon Communications Inc. VZ is leaving no stone unturned to maintain its market share as the largest national wireless service provider. The telecom bellwether recently announced that its 5G Ultra Wideband network is live in the Mcity Test Facility.
This test center is situated on a 32-acre site on University of Michigan’s North Campus Research Complex and has more than 16 acres of road and traffic infrastructure. It is known to be the world’s first controlled hub, focusing precisely on intelligent transportation and autonomous vehicles. (Read more: Verizon Brings 5G Ultra Wideband to Mcity Test Facility)
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, CenturyLink was the biggest gainer with its share price increasing 12.4% while Motorola was the sole decliner with its stock down 8.2%.
Over the past six months, Qualcomm has been the best performer with its stock appreciating 30.7%, while Arista Networks was the biggest decliner with its stock down 18.5%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average gain of 3.4% while the S&P 500 has rallied 6%.
What’s Next in the Telecom Space?
In addition to strategic deals, product launches and 5G deployments all eyes will remain glued to how the government handles the various issues related to trade war negotiations.
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