Telecom Stock Roundup: Harris Gets Merger Nod, BlackBerry's Q1 Results & More

In the past five trading days, telecom stocks witnessed a relatively flat trajectory as the industry awaited an early resolution to the trade war on the proposed resumption of bilateral trade talks between President Trump and his Chinese counterpart on the sidelines of G20 summit. The improvement in the Sino-U.S. relationship is expected to buoy the industry that has borne the brunt of the tariff war with various trade restrictions affecting the supply chain mechanism and risking business sustainability.

Despite the outreach and visible camaraderie, the Trump administration has initiated a 150-day review process of the U.S. telecommunications supply chain to ensure that 5G equipment used in the country is designed and manufactured outside China. The government is seeking an informal response from various equipment manufacturers to thwart any possible data espionage by eliminating purported attempts by Chinese engineers to insert security holes into technology made in China. The U.S. officials are reportedly mulling to allow the manufacturing of benign analog components, such as power converters and protective cases in the communist nation. But they intend to restrict the same for ‘intelligent’ components that deal with data-intensive applications like cellular-tower hardware, routers and switches.

At the same time, with strict government restrictions still in place for Chinese telecom equipment manufacturer Huawei, several small rural U.S. telecom carriers are considering to tap its rivals Nokia (HE:NOKIA) and Ericsson (BS:ERICAs) to replace their banned equipment. However, negotiations to switch from low-priced components to pricier alternatives are likely to be fruitful only when the Congress approves $700 million in subsidies for the changeover. The uncertainties have effectively put the sustainability of the rural wireless carriers at stake, risking several jobs.

In order to safeguard their business interests, various U.S. firms have started to circumvent the law to continue trading with Huawei. Leveraging the de minimis rule, various technology firms are supplying components that are manufactured in overseas territories to Huawei. This has offered some respite to the U.S. firms, and assumes added significance as the government continues to expand the curbs on technology export to China.

It remains to be seen how the bilateral negotiations in Osaka, Japan, pan out in the future and eliminate the various stumbling blocks that threaten to derail the global economy, while boosting the beleaguered telecom industry.

Regarding company-specific news, regulatory approval, earnings, collaborations and strategic deals primarily took the center stage over the past five trading days.

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1. Harris Corporation (NYSE:HRS) has secured the final regulatory approval from European Union (“EU”) for its long-pending merger with L3 Technologies, Inc. With this, the all-stock-merger deal is set to close on Jun 29, 2019, paving the way for the formation of one of the largest entities in the U.S. defense industry.

Harris had earlier received mandatory approvals for the transaction from all concerned authorities except the anti-trust regulatory body of the EU. The EU Commission feared that the merger would lead to a monopolistic market for image intensification night vision devices and image intensification tubes, harming competitive and fair-trade practices. In order to clear the last stumbling block, Harris sold its Night Vision business to Elbit Systems of America, LLC for $350 million in cash. This cleared the path for the final regulatory approval for one of the largest mergers in the defense industry. (Read more: Original post

Written By: Zacks Investment Research