Telecom Stock Roundup: Ericsson Q3 Earnings Miss, AT&T's Buyout & More

In the past five trading days, telecom stocks witnessed an uptrend as high-level trade officials from the United States and China remained busy working on the modalities of the “Phase One” deal. The partial trade accord is likely to ease the bilateral tensions between President Trump and his Chinese counterpart, who are expected to formally sign an agreement in mid-November. Although widespread expectations of improving market conditions from the preliminary trade deal have led to positive vibes within the industry, lower-than-expected earnings performance and relatively soft outlook from hitherto declared results have partially played a spoilsport.

Leveraging the bonhomie of the Sino-U.S. relations, leading Chinese telecom equipment manufacturer Huawei is reportedly in early talks with American firms to license its 5G technology. Although President Trump has eased some trade restrictions on Huawei, it still continues to be on the U.S. Commerce Department's Entity List, debarring the exclusive use of its networking equipment and components on national security grounds. In order to circumvent this, Huawei is aiming to offer either long-term licensing deals or one-time technology transfer for access to its 5G patents, licenses, code and manufacturing knowhow. This, in turn, would enable the prospective U.S. buyer firms to modify the source code and use it according to their requirements, thereby nullifying the threat of spying and data espionage by the communist nation.

The Department of Defense has revealed plans to issue a draft Request for Proposal in November for large-scale experimentation and prototyping of 5G technologies at four U.S. military installations. In addition to streamlined access to site spectrum bands, fiber and wireless infrastructure, the installation will provide the wherewithal to conduct controlled experimentation with dynamic spectrum sharing. This is likely to give an opportunity to the industry to employ new commercial technologies to enhance military capabilities, speed up 5G deployment and provide feedback before the final Request for Proposal is issued.

Regarding company-specific news, earnings, acquisition, strategic collaboration, footprint expansion, and product launch primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.      Ericsson ERIC reported mixed third-quarter 2019 financial results, wherein the top line beat the Zacks Consensus Estimate but the bottom line missed the same.

Non-IFRS loss was SEK 1.80 (19 cents) per share against earnings of SEK 1.03 per share in the year-ago quarter. The bottom line compared unfavorably with the Zacks Consensus Estimate for earnings of 8 cents. Quarterly net sales increased 6.2% year over year to SEK 57,127 million ($5,956.1 million), primarily driven by strong growth in North America and North East Asia. The top line surpassed the consensus estimate of $5,903 million. (Read more: Ericsson Misses on Q3 Earnings, Ups 2020 Sales View)
 
2.     According to a Reuters report, AT&T Inc.’s T advertising unit Xandr has acquired Clypd for an undisclosed amount to expand into the television ad realm.

The acquisition will facilitate Xandr to introduce personalized TV ads and augment its linear TV ad space to Xandr Community – a curated marketplace of publishers that enables advertisers to reach large scale audience in a premium video environment. The transaction is likely to improve the overall value of its robust ad-supported premium video content portfolio, such as Turner Networks, Audience Network and Otter Media. (Read more: AT&T's Xandr Acquires Clypd to Boost TV Advertising Business)

3.      Corning Incorporated GLW recently announced collaboration with Intel Corporation to accelerate the availability of 5G in buildings.

The initiative is likely to create a path for mobile network operators and enterprise building owners to deploy 5G solutions that meet the performance demands of their customers and enable faster adoption of 5G applications. Jointly, the companies will work to deliver a virtual platform for Corning’s 5G network solutions powered by Intel Xeon Scalable processors and Intel FlexRAN Reference Software Architecture. (Read more: Corning Partners Intel for In-Building Network Solutions)

4.     Verizon Communications Inc.’s VZ 5G Lab has augmented the GPU-based cloud services capabilities by developing a set of revolutionary mobility solutions.

In order to assist developers, Verizon’s team has expanded the capabilities similar to Application Programming Interface to build an application that doesn’t require additional code, thereby creating consistency across various apps. This is likely to provide a platform for developing ultra-low-latency cloud gaming, thereby enabling the development of scalable, low cost and highly powerful mobile devices. (Read more: Verizon Boosts 5G Technology for GPU-Based Cloud Services)

5.     Sprint Corporation S recently announced that it is launching two new products in the market — Pebble femtocell and Sprint Magic Box Silver — to enhance data coverage.

Pebble femtocell has been intricately designed to offer an untethered Wi-Fi backhaul option in conjunction with standard Ethernet connection to provide high-speed data services to customers. The Sprint Magic Box Silver is a revamped version of Sprint Magic Box. It proffers plug-and-play feature, which enables the device to automatically connect with the network, thereby enhancing the data speed and coverage at the same time. (Read more: Sprint Develops Small Cell Solutions for Higher Coverage)

Price Performance

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, CenturyLink was the biggest gainer with its share price increasing 7%, while Motorola was the biggest decliner with its stock down 2.2%.

Over the past six months, AT&T has been the best performer with its stock appreciating 19.6%, while Arista Networks was the biggest decliner with its stock down 29%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 5.6% and the S&P 500 has rallied 2.2%.

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 the ‘Phase One’ deal.

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