In the past week, the U.S. telecom stocks continued to mirror the broader benchmark indices and trended down with surging coronavirus cases clouding broad-based expectations of a speedy turnaround in the economy. The growth momentum further faded as the string of supplemental unemployment benefits and other stimulus previously approved by the Congress expired. To add to the woes, hopes of consensus on additional stimulus eroded, at least until the Presidential elections.
In order to thwart the hegemony of China’s hardware-based 5G model, leading U.S. telecom firms and other technology hotshots are pushing for a software-based approach to build an all-pervasive 5G network. This is likely to encourage the development of open radio access networks, or RAN, which power cellular technology. RAN is an essential element of a mobile telecommunication system that connects user devices such as computers, smartphones and tablets to the core part of a network. The O-RAN (open RAN) alliance is now urging the Trump administration to break away from proprietary telecom networks and embrace virtual telecom model to counter the increasing dominance of China-based firms like Huawei.
Following the footsteps of other European countries, Italy has debarred Huawei from supplying telecommunications equipment for its 5G core network citing security concerns. Moreover, Bulgaria has joined the U.S.-led international coalition against Huawei. Notably, the White House is seeking a ban on TikTok, WeChat and other Chinese apps that are allegedly being used as cyber espionage tools to gain access to sensitive American data. However, an appeals court recently rejected a government appeal seeking immediate ban of WeChat download from U.S. app stores. This has offered a temporary respite to WeChat that boasts an average of 19 million daily active users in the United States.
Meanwhile, the Federal Communications Commission (“FCC”) is set to vote on Nov 18 to offer a block of the 5.9 GHz spectrum band for wireless use. The spectrum earmarked for auto safety has mostly been unused and is now being considered to be made available to accommodate the increasing number of wireless devices. The FCC plans to transition the upper 30 MHz from the spectrum band for a different automotive communications technology called Cellular Vehicle-to-Everything, or C-V2X, and use the other 45 MHz for wireless use. While almost automakers have rejected the proposal, major telecom firms have backed it.
Regarding company-specific news, earnings primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. AT&T Inc. T reported relatively healthy third-quarter 2020 results with solid subscriber growth backed by a resilient business model and robust cash flow position driven by a diligent execution of operational plans. While adjusted earnings marginally missed the Zacks Consensus Estimate, revenues beat the same despite coronavirus hitting top-line growth. The company expects to continue investing in key areas and adjust its business according to the evolving market scenario to fuel long-term growth, while maintaining a healthy dividend payment and actively pruning debt.
Excluding non-recurring items, adjusted earnings were 76 cents per share compared with 94 cents in the year-earlier quarter. Adjusted earnings for the third quarter missed the Zacks Consensus Estimate by a penny. Quarterly GAAP operating revenues decreased 5% year over year to $42,340 million, largely due to lower revenues from legacy wireline services, lower advertising and content revenues from WarnerMedia, domestic video and adverse currency translation effects. The top line beat the consensus mark of $41,557 million.
2. Corning Incorporated GLW reported healthy third-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.
Core net income came in at $380 million or 43 cents per share compared with $397 million or 44 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents, delivering a positive surprise of 13.2%. Quarterly GAAP net sales increased 2.3% year over year to $3,001 million, led by Specialty Materials and Display Technologies. Core sales grew to $3,007 million from $2,969 million in the year-ago quarter. The top line surpassed the consensus estimate of $2,921 million.
3. Juniper Networks, Inc. JNPR reported relatively modest third-quarter 2020 results exhibiting top-line and bottom-line growth, with the former surpassing the Zacks Consensus Estimate but the latter marginally missing the same. The company experienced solid demand during the quarter.
Non-GAAP net income was $144.4 million or 43 cents per share (in line with the mid-point of the company’s guidance) compared with $166.6 million or 48 cents per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by a penny. Quarterly total revenues aggregated $1,138.2 million (above the mid-point of the management-provided guidance) compared with $1,133.1 million reported in the year-ago quarter. The marginal increase, despite coronavirus-led adversities leading to supply constraints and extended lead times, was largely driven by a healthy demand curve. The top line beat the consensus mark of $1,131 million.
4. Sensata Technologies Holding plc ST reported relatively healthy third-quarter 2020 financial results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate.
On an adjusted basis, quarterly net income was $103.6 million or 66 cents per share compared with $144.6 million or 90 cents per share in the year-ago quarter. The bottom line surpassed the consensus estimate by 12 cents. Quarterly revenues aggregated $788.3 million compared with $849.7 million in the year-ago quarter. The decline was mainly due to a 7.5% fall in organic revenues, followed by end-market contraction due to the adverse impact of COVID-19 pandemic. However, the top line beat the consensus estimate of $758 million.
5. NETGEAR, Inc. NTGR reported solid third-quarter 2020 results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate. Further, earnings and revenues increased considerably on a year-over-year basis backed by a growing subscriber base despite the COVID-19 mayhem.
Non-GAAP net income from continuing operations was $34.7 million or $1.13 per share compared with $20.7 million or 65 cents per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimate by 47 cents. NETGEAR generated net revenues of $378.1 million, up 42.2% year over year driven by exceptionally solid demand for CHP (Connected Home Products) in the wake of growing work-from-trend due to the COVID-19 pandemic with high bandwidth consumption. The top line surpassed the consensus estimate of $317 million.
The following table shows the price movement of some of the major telecom stocks over the past week and the six months.
In the past five trading days, none of the stocks gained, while Lumen was the biggest decliner with its stock falling 10.9%.
Over the past six months, Qualcomm has been the best performer with its stock appreciating 35.3%, while Lumen was the biggest decliner with its stock falling 21.9%.
Over the past six months, the Zacks Telecommunications Services industry has rallied 0.1% on average and the S&P 500 has gained 16.2%.
What’s Next in the Telecom Space?
In addition to the 5G deployments and product launches, all eyes will remain glued to how the earnings season unfurls for the remaining companies of the sector.
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