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Telecom Stock Roundup: Will U.S. Restrictions On Chinese Firms Boomerang?

Published 04/19/2018, 08:50 AM
Updated 07/09/2023, 06:31 AM

Over the last five trading days, telecom stocks were initially slow off the blocks but gradually picked up pace, as protective measures by the U.S. government seemed to propel the industry to gain an upper hand over its Chinese counterparts.

At a meeting held last week, the Federal Communications Commission (“FCC”) came up with a concrete date to auction licenses of high-band spectrum so that wireless networks could roll out 5G technology by the end of the year. The FCC voted unanimously to auction off licenses for the 28GHz spectrum on Nov 14, followed by another round for 24GHz spectrum soon after. The FCC expects to sell about 6,000 individual licenses for different chunks of spectrum in different geographic locations.

The FCC also voted unanimously to finalize a plan this year to prevent federally subsidized telecommunications carriers from using suppliers deemed to pose a risk to the U.S. national security. The decision takes a swipe at Chinese telecom companies like Huawei and ZTE and intensifies the murky trade war between the two superpowers. The strategic plan aims to thwart the U.S. companies to utilize the $8.5 billion FCC Universal Service Fund to procure goods or services from Chinese firms, limiting the latter’s ability to sell their products in the country.

Regarding company-specific news, the earnings season started off with ADTRAN Inc. (NASDAQ:ADTN) reporting results, while continued product launches for superior connectivity and high-quality content to subscribers at lower cost of ownership gained momentum over the last five trading days.

Recap of the Week’s Most Important Stories

1. ADTRAN reported lackluster first-quarter 2018 results with both the top line and bottom line missing the respective Zacks Consensus Estimate. Excluding non-recurring items, non-GAAP loss for the reported quarter was 29 cents per share against earnings of 18 cents in the year-earlier quarter and was wider than the Zacks Consensus Estimate of a loss of 15 cents.

Total revenues for the first quarter were $120.8 million compared with $170.3 million in the prior-year quarter. Also, the top line missed the Zacks Consensus Estimate of $126 million. The significant decline was primarily attributable to slowdown in the spending at a domestic Tier 1 customer (resulting in lower product volumes), high restructuring expenses and a merger-related review. (Read more: ADTRAN Q1 Loss Wider Than Expected on Revenue Decline)

2. In a deadly blow to QUALCOMM Incorporated (NASDAQ:QCOM) , the U.S. government has banned sale of components by American firms to Chinese telecom equipment maker, ZTE Corp.

Citing a breach of agreement inked last year, the U.S. Department of Commerce slapped a seven-year ban on sale of various components to ZTE after it was caught illegally shipping goods to Iran. The strategic move is likely to hit Qualcomm the most, as it accounts for the lion’s share of semiconductor chips used in ZTE smartphones. Consequently, the move could prove to be a boomerang for domestic manufacturers like Qualcomm. (Read more: Qualcomm's Revenues Might be Hit by Ban on Sales to ZTE)

3. In a concerted move to offer superior viewing experiences, Ericsson (BS:ERICAs) (NASDAQ:ERIC) announced the launch of its MediaFirst End-to-End Ultra High Definition solution. The innovative platform represents the industry's first software-based, multi-application media processing and encoding platform to deliver UHD content from camera to consumer, across the entire media delivery landscape.

The new solution addresses the growing consumer need by enabling viewers to enjoy a better and more immersive viewing experience, even on larger TV sets. It has been designed from ground up to enable contribution workflows using Ericsson Media Solutions' advanced technology, leveraging high performance algorithms for encoding UHD content to be delivered across contribution networks. (Read more: Ericsson to Unveil MediaFirst End-to-End UHD Platform)

4. T-Mobile US, Inc. (NYSE:T) was accused of failing to fix problems relating to phone calls in rural areas and using false ring tones, which were banned, to give the impression that the faulty calls were actually getting through.

The company accepted the charges and acknowledged that false ring tones were used on hundreds of millions of long-distance rural calls in violation of FCC rules. T-Mobile has agreed to pay a fine of $40 million to the U.S. Treasury to resolve the dispute with the government. (Read more: T-Mobile Fined for False Ring Tones on Rural U.S. Calls)

5. Sprint Corporation (NYSE:S) recently announced the launch of Sprint Smart UC. Characterized by an affordable fully-featured unified communications solution, the Smart UC is powered by BroadSoft, Inc., which is part of Cisco Systems (NASDAQ:CSCO), Inc.

The Sprint Smart UC offers a robust work-from-anywhere solution that brings fully-integrated communication and collaboration services together. The solution can be seamlessly integrated into a Sprint-converged IT platform, comprising world-class wireless, wireline and IoT solutions with one point of contact. It is aimed at elevating employee collaboration and organizational communication. (Read more: Sprint Unveils Smart UC to Elevate Employee Collaboration)

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 3.8% while Juniper Networks, Inc. (NYSE:JNPR) was the major loser, with its stock declining 1.3%.



Over the last six months, Motorola Solutions, Inc. (NYSE:MSI) was the best performer with its stock appreciating 19.2%, while Sprint was the major decliner with its shares falling 15.5%.

Over the last six months, the Zacks Telecommunications Services industry underperformed the benchmark S&P 500 index with an average decline of 1.4% against a gain of 5.9% for the latter.



What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to major earnings releases of the sector next week, namely Ericsson, Verizon Communications Inc. (NYSE:VZ) , AT&T Inc. (NYSE:T) and Qualcomm.

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ADTRAN, Inc. (ADTN): Free Stock Analysis Report

Juniper Networks, Inc. (JNPR): Free Stock Analysis Report

Ericsson (ERIC): Free Stock Analysis Report

Harris Corporation (HRS): Free Stock Analysis Report

QUALCOMM Incorporated (QCOM): Free Stock Analysis Report

Motorola Solutions, Inc. (MSI): Free Stock Analysis Report

AT&T Inc. (T): Free Stock Analysis Report

Sprint Corporation (S): Free Stock Analysis Report

Verizon Communications Inc. (VZ): Free Stock Analysis Report

T-Mobile US, Inc. (TMUS): Free Stock Analysis Report

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