In the past five trading days, the initial rally of the telecom stocks saw a reversal as global supply chains were disrupted due to the trade war. Despite the Trump administration temporarily easing some trade restrictions on Huawei, several European firms followed suit and have either suspended their deals or cancelled pre-orders with the Chinese smartphone manufacturer. As the tariff war virtually leads to intense technology warfare between the two superpowers of the global economy, the industry is likely to get polarized into two distinct halves, bringing an element of uncertainty within the rank and files of the telecom sector.
The U.S. President continued to put pressure on the communist nation with his usual rhetoric and hinted that additional tariffs were just around the corner. He further added that the government was in no hurry to reach a bilateral trade settlement with China as the United States was reportedly filling up its coffers in huge quantity with the tariff bill. In reply, the Chinese officials refuted Trump’s assertions that China was desperate to reach a consensus trade deal and maintained that an agreement would only materialize with mutual respect, trust and benefit.
Meanwhile, conflicting signals have emerged about whether the trade war has backfired on the U.S. interests as several rural telecom carriers have publicly criticized the trade restrictions on cheap Huawei equipment. The ban has effectively forced various small and independently-owned telecom operators to replace the existing equipment with other relatively expensive alternatives, thereby increasing their operating expenses, or risk withdrawal of support services from Huawei. This, in turn, might jeopardize the sustainability of various firms and put thousands of jobs at risk. The U.S. lawmakers have already introduced a bill to provide up to $700 million to the telecom carriers, particularly in rural areas, to avert such crisis.
On the other hand, Huawei has ramped up its legal fight against the U.S. government sanctions and have filed a motion to step-up its earlier lawsuit filed in a federal court in Texas. The recent filing, which in legal parlance is known as a “motion for summary judgment”, is aimed to expedite the case without requiring it to have a full-blown trial and avoiding handling of sensitive corporate information. Whether the court will indeed accept such a request from Huawei or heed the government’s words remains to be seen. With Huawei facing probable roadblocks beyond the 90-day window for accessing Google’s android platform along with hardware, software and key technical services from various U.S. and European technology firms, the battle for survival appears murkier.
Regarding company-specific news, legal recourse for stay in anti-trust ruling, revenue guidance, 5G deployment, earnings and footprint expansion primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. Qualcomm Incorporated QCOM recently sought a stay on the anti-trust ruling by federal judge Lucy Koh. The strategic move is aimed to safeguard its business interests and maintain seamless operations, which would otherwise go haywire if the decision is implemented.
Overseeing the Federal Trade Commission's litigation against Qualcomm, the U.S. District Court Judge issued a ruling in favor of the former, and observed that the chip manufacturer had violated anti-trust regulations through monopolistic trade practices. In order to encourage fair competition, the ruling ordered Qualcomm to renegotiate licensing contracts with customers to ensure that both buyers and other chip makers are not forced to pay exorbitant licensing fees on its patents. It also directed the company to end any exclusive agreement with customers, which prevented other chip makers from making a production bid. (Read more: Qualcomm Seeks Stay in Anti-Trust Ruling, Contemplates Appeal)
2. InterDigital, Inc. IDCC has offered healthy revenue guidance for second-quarter 2019. After reporting relatively lackluster results in the first quarter, the higher revenue expectations are likely to soothe investor nerves and propel its share prices.
Management currently expects second-quarter revenues to lie within $73 million to $77 million, excluding any potential impact from a new patent sale agreement or patent license deal inked in the remainder of the ongoing quarter. This compares favorably with revenues of $70 million generated in the year-earlier quarter. (Read more: InterDigital Issues Higher Revenue Guidance for Q2)
3. Nokia Corporation NOK recently announced that it has been chosen by SoftBank Corp. — a leading Japanese telecommunications company — as a primary partner to drive its commercial 5G offering with Nokia AirScale solution. Presently, Nokia has 38 5G commercial contracts, including 20 with named customers.
The latest move strengthens the long-standing relationship between the two companies. The deployment of the Finnish telecom equipment supplier’s 5G AirScale will likely allow SoftBank to address the increasing demand for the future of connectivity. Markedly, the solution supports multiple frequencies in both distributed and centralized architectures, offering flexibility in network transformation. (Read more: Nokia to Support SoftBank in Commercial 5G Network Launch)
4. Viasat, Inc. VSAT reported solid fourth-quarter fiscal 2019 results, wherein both revenues and adjusted earnings surpassed the respective Zacks Consensus Estimate, and increased year over year.
Non-GAAP net income was $20.4 million or 33 cents per share against net loss of $3.1 million or loss of 5 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate of loss of 25 cents. Quarterly total revenues increased 26.7% year over year to $557.2 million, primarily driven by double-digit top-line growth in all three operating segments. The top line surpassed the consensus estimate of $549 million. (Read more: Viasat Q4 Earnings & Revenues Top Estimates, Up Y/Y)
5. Per media reports, CenturyLink, Inc. CTL has purchased a land property in Miami’s Allapattah for $18.8 million. The communications company, which provides Internet services in South Florida, intends to use this newly-bought property for office purposes.
Apart from expanding its footprint in emerging markets, CenturyLink is progressing well with its transformation initiatives, which are aimed at improving the experience for customers and employees, and reducing costs. (Read more: CenturyLink Purchases Property in Miami, Expands Footprint)
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, Sprint Corporation was the sole gainer with its share price increasing 1.9% while Qualcomm was the biggest decliner with its stock down 5.4%.
Over the past six months, Harris has been the best performer with its stock appreciating 23.3%, while Juniper was the sole decliner with its shares falling 17.2%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average decline of 5.4% while the S&P 500 rallied 0.3%.
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 counter each other in the tariff war.
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