Telecom Stock Roundup: Qualcomm's Bypass Plans, T-Mobile's Merger Efforts & More

In the past five trading days, telecom stocks witnessed a gradual uptrend despite tense undercurrents related to the tariff war. With the Trump administration temporarily easing some trade restrictions on Chinese smartphone manufacturer Huawei, the industry appeared to be on firm footing and remained well poised to minimize any potential supply-chain disruption. As the tariff war virtually leads to intense technology warfare between the two superpowers of the global economy, the industry is likely to get polarized into two distinct halves, with the U.S. firms apparently holding a slight advantage due to their technological supremacy.

Last week, Trump had signed an executive order to declare national emergency that effectively barred U.S. firms from either buying or selling any telecom equipment to firms like Huawei that are deemed to pose national security risks. The directive invoked the International Emergency Economic Powers Act, which bestowed the President with the authority to regulate commerce in view of the national emergency that threatened the country. The U.S. Commerce Department immediately added Huawei along with 70 of its affiliates to the Entity List – a list of entities that are ineligible to receive any item without the government approval.

However, the government later offered a 90-day window till August 2019 to Huawei to enable it purchase components from U.S. suppliers to fulfill its commitments for existing products. The temporary relief is primarily intended to aid U.S. telecom service providers, which rely on Huawei equipment, to chalk out alternate arrangements and avoid any market disruption. Estimates reveal that out of $70 billion spent by Huawei in 2018, U.S. firms reportedly received $11 billion. The current restrictions will, however, remain in force for any new and upcoming products from the stable of the Chinese firm.

Responding to such stringent actions and in order comply with the U.S. government sanctions to prevent alienation, several European firms are following suit and are either suspending their deals or cancelling pre-orders. Carriers in South East Asian countries in Japan and Taiwan have also shelved future orders for new smartphone models from Huawei. This could jeopardize 5G rollout schedules in various countries as it would involve getting rid of cheaper Huawei networking equipment and build newer ones from scratch. Meanwhile, the U.S. lawmakers have introduced a bill to provide up to $700 million to the telecom carriers (particularly in rural areas) to replace such equipment that are deemed a security risk.

Regarding company-specific news, efforts to bypass trade ban, merger clearance, strategic investments and contracts primarily took the center stage over the past five trading days.

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Recap of the Week’s Most Important Stories

1. Despite stringent restrictions to supply component and software to Chinese telecom equipment manufacturer Huawei, InterDigital, Inc. (NASDAQ:IDCC) expects to continue licensing 5G networking technology for seamless rollout of superfast 5G networks across the communist nation. Qualcomm Incorporated (NASDAQ:QCOM) is also expected to remain unaffected by the ban, and is likely to continue licensing its patented technology to Huawei without any restrain.

InterDigital expects to face no threat from licensing its patented technology to Huawei, as export control laws do not cover patents as they are widely available in public domain and are not confidential technology secrets. Trade attorneys have also corroborated that Qualcomm is likely to face no objection from government authorities while licensing its patented technology to Huawei in the future. (Read more: Zacks Investment Research

Written By: Zacks Investment Research