In the past five trading days, telecom stocks witnessed a roller-coaster ride as the initial uptrend was followed by a sharp downtrend as optimism on 5G launch eroded with the apprehension of a muted earnings season. Several micro factors further compounded the market anarchy and the industry apparently failed to make any noticeable headway over the past week.
Per the latest report by the Cellular Telecommunications Industry Association, which represents the U.S. wireless communications industry, both the United States and China are currently on equal footing for 5G readiness. This was made possible through continued investments from the industry and a prod from the top policymakers to update networks faster. With a holistic top-down approach, the United States was able to expedite the process to set up the required infrastructure and back it up with testing and launching of early networks in key locations. The marked an improvement from last year, when the United States was trailing way behind China and South Korea in the 5G race, probably spurred an uptrend for the telecom stocks in general.
However, as focus shifted to corporate earnings and declining estimates, the stocks witnessed a volte-face and nullified the earlier gains. Earnings growth projections for the first quarter of 2019 and for the second quarter are currently hovering in the negative territory, fuelling speculations of an impending recession. Although an economic downturn is likely to occur as part of a boom and bust cycle, given the fact that we are in the midst of the longest ever bull market, recessionary fears seem a bit exaggerated. The decline in earnings estimates is largely due to unfair year-over-year comparisons with the respective quarters of 2018, when corporate tax cuts significantly boosted earnings. Nevertheless, broad-based expectations of a soft earnings season seem to have dampened investor sentiments, triggering a downtrend.
On the other hand, uncertainty regarding U.S.-China trade negotiations persisted as the nine-month old trade war that disrupted supply chains and weighed on the world economy is yet to be fully resolved. Although both the warring countries have agreed upon the enforcement mechanisms, the finer details are reportedly still under deliberations. As the industry awaits an early resolution to the prolonged bilateral talks to better focus on the impending 5G boom, efforts are on to give a final push to a mutually acceptable trade deal that is easily enforceable.
Among other developments, the bill introduced by the Democratic lawmakers in the House and Senate to reinstate the net neutrality rules that the Federal Communications Commission had repealed in 2017, passed the floor test in the House of Representatives with a resounding win of 232-190 in voting. Titled ‘Save the Internet Act’, the bill aims to discourage blocking or throttling content and consider Internet access as a “utility” under Title II of the Communications Act. However, stiff resistance is apprehended in the Senate where Republicans hold the majority. Moreover, the bill is likely to be vetoed by Trump as he had been vocally skeptical of net neutrality in the past.
Regarding company-specific news, 5G launch, collaborations and strategic deals primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. AT&T Inc. T recently announced that it has introduced mobile 5G service in certain areas of seven more cities, namely, Austin, Los Angeles, Nashville, Orlando, San Diego, San Francisco and San Jose, bringing the tally of its 5G service availability to 19.
AT&T had previously launched its mobile 5G service in parts of Houston, Jacksonville, Louisville, New Orleans, San Antonio, Atlanta, Charlotte, Dallas, Indianapolis, Oklahoma City, Raleigh and Waco. (Read more: AT&T Ups the Ante in 5G Race, Service Reaches to 19 Cities)
2. In order to match strides with competitors, Verizon Communications Inc. VZ has collaborated with industry-leading web-based video playback services providers, THEO Technologies and IRIS.TV, to enrich its video streaming network.
The integration of the THEOplayer Universal Video Player and IRIS.TV’s Video Personalization Platform will expand the capabilities of Verizon Digital Media Services to offer more personalized service to users and thwart competitive pressure. (Read more: Verizon Partners With THEO & IRIS.TV for Enriched Streaming)
3. The U.S. Air Force has selected Harris Corporation HRS to support the electronic warfare system and allied infrastructure for its defense personnel across the globe. The contract for undisclosed amount banks on Harris’ 25-year old rich legacy of unrivalled coverage of the electromagnetic spectrum encompassing air, land and sea domains, in order to gain technical superiority in mission-critical operations.
Per the deal, the company will provide depot support and sustainment engineering, system upgrades and modifications, studies and analysis, transition of future systems, and operations support. (Read more: Harris Augments US Air Force's Electronic Warfare Systems)
4. Per media reports, T-Mobile US, Inc. TMUS has inked a content distribution agreement with Viacom Inc. — the owner of Nickelodeon, MTV, Comedy Central and Paramount Pictures. Notably, Viacom is the first TV partner that T-Mobile has announced for its forthcoming over-the-top push.
The multi-year deal will allow T-Mobile to bring together live linear feeds of Viacom channels coupled with a range of on-demand content for nearly 80 million customers. (Read more: T-Mobile Collaborates With Viacom to Tap Streaming Services)
5. Qualcomm Incorporated QCOM, a household name that is synonymous with smartphone chips, has decided to throw its hat in the ring for data center chips. However, Qualcomm is yet to provide the finer details of the upcoming product dubbed the Cloud A1.
Leveraging its mobile expertise, Qualcomm intends to replicate its success story within the data center chip market by offering AI-powered chips that form the fundamental building blocks of cloud computing. (Read more: Qualcomm Joins Fray in Data Center Chip: Should Rivals Worry?)
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 biggest gainer with its share price increasing 5.9% while Qualcomm was the largest decliner with its stock down 2.4%.
Over the past six months, SBA Communications has been the best performer with its stock appreciating 27.1% while Qualcomm declined the most with its shares falling 14.1%.
Over the past six months, the Zacks Telecommunications Services industry has gained 0.7% compared with the S&P 500’s rise of 4.2%.
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 continue their negotiations for a long-term solution to the trade war.
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