In the past five trading days, telecom stocks initially witnessed a healthy uptrend followed by a relatively flat trajectory as the fresh round of Sino-U.S. tariffs became effective Sep 1. Tense geopolitical scenarios and challenging global macroeconomic environment partially dented the momentum, although news of a ‘face-to-face’ meeting between the negotiators of the two sides in October aimed to defuse some of the undercurrents and propelled the stocks higher at the later stages of the past week.
The Trump administration went ahead with its proposed set of tariffs beginning this month and imposed 15% tariffs on $100 billion worth of imports from China. The latest import basket included mostly consumer goods like food, apparel, footwear and consumer electronics. Notably, the U.S. government had earlier decided to impose 10% tariff (which was later increased to 15%) on $300 billion of Chinese imports from September before Trump opted to delay taxing about 60% of the items from the list until Dec 15. These included cellphones, video game consoles, computer monitors, some clothing and footwear items. The strategic decision was aimed to offer some respite to the retailers and enable them to stockpile things for the back-to-school and holiday season. The short-term reprieve also offered U.S. telecom firms an opportunity to re-draw their supply chain mechanism and reduce dependency on Huawei to avert a possible future backlash.
In response, China imposed 5-10% retaliatory tariffs only on one-third of the proposed 5,000 U.S. items worth $75 billion, leaving the door ajar for negotiations. Subsequent communications across various diplomatic channels bore fruit and the two countries have agreed to hold meeting in October, before creating a conducive atmosphere for favorable trade discussions. However, in a visible shift from his earlier stance, the U.S. President has made it clear that the talks would not focus on the blacklisting of Huawei as it was deemed to be an issue of national security. The Trump administration is also supposedly sitting on about 130 applications received by the Commerce Department for issue of licenses for the trade of U.S. goods with Huawei. With no progress yet made to break the trade embargo on Huawei, the bonhomie is likely to be put to test once the two sides sit across the negotiation table.
Meanwhile, market uncertainty regarding the geopolitical turmoil in the United Kingdom related to Brexit, soft manufacturing spending in Japan and tepid GDP growth in China triggered by low factory output and high unemployment has led to intense market volatility across the globe. The U.S. manufacturing activity also contracted for the first time since early 2016 and together with a low second-quarter GDP growth estimate of 2%, following 3.1% growth in the first quarter, rendered a relatively grim picture for the future. Consequently, the stakes are relatively high for both the countries to arrive at an agreeable solution – the sooner, the better.
Regarding company-specific news, product launches, 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. Sprint Corporation S has unveiled a state-of-the-art video analytics solution to facilitate business enterprises to make informed and timely decisions to avert any potential crisis and improve operational efficiency.
Dubbed Curiosity Smart Video Analytics, the product was developed in conjunction with technology partners Ericsson ERIC and Hitachi Vantara — a data storage system provider and wholly owned subsidiary of Hitachi Ltd. Leveraging AI and IoT, this highly adaptable solution delivers automated alerts and advanced video analytics technology to redefine the critical security operations of diverse business entities. (Read more: Sprint Collaborates With Ericsson to Improve Video Analytics)
2. AT&T Inc.’s T subsidiary, AT&T Communications, has entered into a new multi-year content carriage agreement with Starz — a Lions Gate Entertainment Corp.’s media and entertainment firm.
The deal secures rights for AT&T to offer the full suite of STARZ and STARZ ENCORE premium linear and HD channels, On-Demand, HD On-Demand and online services to its DIRECTV, AT&T TV and U-verse video platform customers. Markedly, the comprehensive agreement gives millions of AT&T subscribers access to Starz’s acclaimed premium original content and library of blockbuster films. (Read more: AT&T Inks New Content Carriage Agreement With Starz)
3. Viasat, Inc. VSAT recently announced that it has successfully upgraded the North Atlantic Treaty Organization’s (“NATO”) Ultra High Frequency satellite communications control stations.
By working closely to understand NATO’s most urgent needs, Viasat has delivered a cost-effective, scalable and interoperable technology that is required to support emerging mission demands and help NATO warfighters maintain communications at the tactical edge. (Read more: Viasat Upgrades NATO's UHF SATCOM Control Station)
4. Finisar Corporation FNSR has introduced WaveAnalyzer 1500S/L High Resolution Optical Spectrum Analyzer. The instrument is designed to inspect the spectral characteristics of optical channels in the L-band of the telecommunications spectrum.
This new product has been developed for engineers focused on optical communication systems operating in the L-band, and for manufacturing test applications on the production floor. It is based on heterodyne measurement technology and offers a resolution bandwidth of 180 MHz. (Read more: Finisar Unveils High Resolution Optical Spectrum Analyzer)
5. According to media reports, China Telecom Corporation Limited CHA is actively considering plans to develop blockchain-enabled 5G SIM card in order to secure a greater pie in the market. The move would enable the company to gain additional mileage by capitalizing on the wide proliferation of crypto currency amid increased deployment of 5G technology across the globe.
The company has reportedly provided a blueprint of its ambitious plan that aims to develop a SIM card that will support Ethereum and ERC20 tokens — the crypto assets used for trading — and is compatible with all types of smartphones. In addition, it is likely to have superior safety features for secure transaction across 5G network, including digital identity authentication for decentralized identification and data ownership for sharing data with financial services providers. (Read more: China Telecom to Launch Blockchain-Enabled 5G SIM Card)
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 3.6% while none of the stocks declined.
Over the past six months, Qualcomm has been the best performer with its stock appreciating 28.9%, while Arista Networks was the biggest decliner with its stock down 21.6%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average rise of 2.1% while the S&P 500 has rallied 4.5%.
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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Ericsson (ERIC) : Free Stock Analysis Report
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