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Trade Restrictions Continue to Haunt Telecom Stocks

Zacks Investment Research

Over the last five trading days, telecom stocks flattered to deceive as the initial upturn was replaced by a sustained downturn on concerns over the implications of the fresh restrictions issued by the U.S. government against Chinese telecom companies.

Trade Restrictions Continue to Haunt Telecom Stocks

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Last week, Treasury Secretary Steven Mnuchin led a delegation of U.S. officials in China to defuse the tensions between the two warring countries while Liu He, the top economic adviser of President Xi Jinping, headed the Chinese side in the talks. The Chinese officials made solemn representations to the visiting delegates to convey the plight of ZTE that invited most of the wrath of the Trump administration.

ZTE also formally appealed to the U.S. Commerce Department’s Bureau of Industry and Security to suspend the seven-year ban on its products that threatened its survival and crippled operations.

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Regarding company-specific news, earnings of some telecom companies along with improved product launches for superior connectivity and high-quality content to subscribers at lower cost of ownership, and acquisitions topped the charts. The industry’s earnings in general appear to be on strong footing backed by healthy growth dynamics thanks to the existing secular trends in cloud computing, artificial intelligence and Big Data.


 Trade Restrictions Continue to Haunt Telecom Stocks: Motorola Solutions Inc (MSI)

Motorola Solutions Inc (NYSE:MSI) reported strong first-quarter 2018 results on the back of healthy growth across all geographic regions. Non-GAAP earnings for the reported quarter were $1.10 per share compared with 71 cents in the year-ago quarter, primarily driven by top-line growth. The bottom line exceeded the Zacks Consensus Estimate of 86 cents.

Net sales in the reported quarter came in at $1,468 million compared with $1,281 million in the year-ago quarter, driven by organic growth of 10% and healthy performance across all regions. Quarterly sales exceeded the Zacks Consensus Estimate of $1,371 million.


 Trade Restrictions Continue to Haunt Telecom Stocks: Sprint Corp (S)

Sprint Corp (NYSE:S) reported healthy fourth-quarter fiscal 2017 results, wherein both the top line and the bottom line surpassed the Zacks Consensus Estimate. The U.S. national wireless carrier delivered record financial results with highest ever net income and operating income in fiscal 2017.

Net income for the reported quarter improved to $69 million from a net loss of $283 million in the year-ago quarter, supported by lower operating expenses and income tax benefit. Earnings per share for the reported quarter came in at 2 cents against a loss of 7 cents in the previous-year quarter. The bottom line surpassed the Zacks Consensus Estimate of a loss of 6 cents.


 Trade Restrictions Continue to Haunt Telecom Stocks: Windstream Holdings Inc (WIN)

Windstream Holdings Inc (NASDAQ:WIN) reported tepid first-quarter 2018 financial results, wherein both the top line and the bottom line missed the respective Zacks Consensus Estimate. However, both the figures improved on a year-over-year basis.

For the reported quarter, the company incurred a net loss of $121.4 million or a loss of 65 cents per share compared with a net loss of $111.3 million or a loss of 89 cents per share in the year-ago quarter. The bottom line was wider than the Zacks Consensus Estimate of a loss of 59 cents. Total revenues increased 6% year over year to $1,454.3 million but missed the Zacks Consensus Estimate of $1,464 million.


 Trade Restrictions Continue to Haunt Telecom Stocks: Nokia Oyj (NOK)

Nokia Oyj (NYSE:NOK) inked a deal to acquire SpaceTime Insight, a California-based IoT startup, for an undisclosed amount. The deal is aimed at expanding Nokia’s IoT portfolio and IoT analytics capabilities while expediting the development of new IoT applications for key vertical markets.

The buyout supports Nokia’s software strategy and leverages SpaceTime’s sales expertise and proven track record in IoT application development, machine learning and data science to augment the efficacy of the Nokia Software IoT product unit.


 Trade Restrictions Continue to Haunt Telecom Stocks: Qualcomm, Inc. (QCOM)

According to a Bloomberg report, Qualcomm, Inc. (NASDAQ:QCOM) is mulling to exit the market for production of high-end processors for data-center servers in order to focus on its core businesses. While the endeavor would help the company save millions of dollars through reduced R&D expenses, it would also increase its dependence on slow-growing market for mobile-phone chips.

Moreover, aggressive competition in the mobile phone chipset market is likely to hurt profits in the future. Although the global smartphone market is expected to maintain its momentum in the next four to five years, a major part of this growth is likely to come from low-cost emerging markets, which is likely to exert pressure on margins.


Price Performance

The following table shows the price movement of some the major telecom stocks over the past week and during the last six months.

In the last five trading days, Harris Corporation (NYSE:HRS) was the major gainer with its share price rising 5.6% while Verizon Communications Inc. (NYSE:VZ) was the major decliner, with its stock losing 3%.

Trade Restrictions Continue to Haunt Telecom Stocks

Over the last six months, Motorola was the best performer with its stock appreciating 13.6% while Qualcomm was the major decliner with its shares falling 25.1%.

Over the last six months, the Zacks Telecommunications Services industry underperformed the benchmark S&P 500 index with an average decline of 4.1% against a gain of 4.3% for the latter.

Trade Restrictions Continue to Haunt Telecom Stocks

What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to the latest developments in the trade war and how the U.S. administration responds to the ZTE plea.

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