Telecom Stock Roundup: BlackBerry Q2 Loss Wider, Ericsson's Smart Factory & More

In the past five trading days, telecom stocks witnessed a healthy uptrend on renewed optimism of a trade deal between the United States and China as both sides agreed to ease the bilateral tensions and pave the way for an early settlement of trade disputes. The on-again, off-again negotiations are likely to get a boost when high-level officials meet in October for a mutually agreeable solution. As the industry awaits the end of the lingering uncertainty related to the 15-month old trade war, latent threats persisted with lawmakers continuing to pile pressure on the authorities to curb Chinese infiltration in the domestic telecommunications network.   

In a complete reversal to his earlier view, President Trump hinted that trade negotiations with the communist nation are likely to be reached sooner-than-expected after criticizing its unfair trade practices at the United Nations General Assembly forum. The usual tirade was probably aimed to put pressure on China to reduce the trade barriers, but it threatened to derail the talks yet again after it drew sharp response from the Far East. With both the countries seeking a profitable solution to the crisis on domestic compulsions, they can hardly afford any slip-ups and the stakes are too high to reach an early resolution.  

Meanwhile, a bipartisan group of lawmakers have released draft legislation to get rid of low-priced telecommunications equipment manufactured by Huawei, ZTE and other Chinese firms by proposing to offer $1 billion to small and rural carriers with less than 2 million subscribers. The move is in sync with the new FCC program dubbed ‘Find it, Fix it, Fund it’ to provide rural telecom carriers adequate funds to self-assess networks and identify ‘suspect equipment’ that could siphon off data. Initially, FCC intends to allow the equipment to stay within the network after being quarantined, but plans to rip and replace it in the long term. The FCC is reportedly planning to bring regulatory changes to make the initiative a compliance issue for rural telecom firms.

Regarding company-specific news, earnings, factory automation, product standardization, and service extension through technology upgrades primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.      BlackBerry Limited BB reported lackluster second-quarter fiscal 2020 (ended Aug 31, 2019) financial results.

The company achieved break-even non-GAAP earnings per share. Adjusted loss per share was 2 cents, which was wider than the Zacks Consensus Estimate of loss of 1 cent. Quarterly GAAP revenues increased 16.2% year over year to $244 million. Software and services revenues were $239 million, up 24%. (Read more: BlackBerry Q2 Loss Wider Than Expected, Revenue View Cut)
2.     Ericsson ERIC has unveiled plans to develop a fully automated smart 5G factory in Lewisville, TX, to cater to the increased demand for 5G deployment across North America.

The 300,000-square-foot state-of-the-art factory is the first of its kind by the company in the United States, and reinforces its commitment to offer fast and secure 5G connectivity in the country through strategic investments. The factory is likely to accelerate the development of 5G ecosystem with a perfect blend of IoT, AI and ML techniques and fill the void created by the various trade restrictions on Huawei for seamless deployment of 5G technology across North America. (Read more: Ericsson to Build Fully Automated 5G Smart Factory in Texas)

3.      In a concerted effort to align with leading camera and video management vendors by standardizing features for video surveillance and physical security products, NETGEAR Inc. NTGR has joined the Open Security and Safety Alliance.

The company expects to work within the framework of this non-profit, non-stock corporation to develop a common platform for manufacturing its high-tech products for improved level of performance across the board. The initiative aims to inculcate common values for seamless integration and a more standardized approach to fundamental challenges in the market. (Read more: NETGEAR Joins OSSA to Standardize Product Security Features)

4.     Bell Mobility, the wireless service provider and subsidiary of BCE Inc. BCE, has extended its broadband service in Nunavut — the northernmost territory of Canada — as part of the company’s commitment to provide wireless network connectivity across rural and remote locations of the country.

The sparsely populated region that forms most of the Canadian Arctic Archipelago will, thus, gain access to mobile data speeds of up to 100 megabits per second. As the leading telecommunications service provider in Canada, Bell is aiming to bring Internet service in smaller towns and rural communities across the country that were hitherto unserved by any carrier. (Read more: BCE's Bell Mobility Extends Broadband Connectivity in Canada)

5.     ADTRAN, Inc. ADTN recently announced that it is helping Talkie Communications — a Chestertown, MD-based Internet service provider — to build a full-fiber, 10G communications foundation along the Eastern Shore of Maryland.

10G PON delivers the service quality and reach that network operators need to maximize their revenue opportunities, while delivering a robust multi-gigabit service structure that meets customers’ increasing demand. With these solutions, operators can shift focus from capacity creation to delivering an enhanced customer experience for supporting intense bandwidth applications. (Read more: ADTRAN Helps Talkie Communications Build Fiber Optic Network)

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, Juniper was the biggest gainer with its share price increasing 3.3% while Qualcomm and Arista Networks both declined 2.1%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 26.3%, while Arista Networks was the biggest decliner with its stock down 28.9%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average gain of 0.1% 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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NETGEAR, Inc. (NTGR): Free Stock Analysis Report

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