Telecom Stock Roundup: Knowles Offers Q4 Preview, Onto's Product Launch & More

The U.S. telecom stocks witnessed a steady downtrend over the past week as the optimism over the coronavirus vaccine rollout was tempered by the political disruptions at the Capitol Hill. The uncertainty stemming from the ruckus was further aggravated by dimming economic outlook as the pandemic situation forced more businesses to shut down, resulting in job cuts. About 140,000 job losses were reported in December — the first since April 2020 — as the outbreak showed no signs of slowing down, leaving the fragile economic recovery at risk. The emergence of the new virus strain further compounded the worries as experts opined that more studies are required to prove the efficacy of the available vaccines against the mutant.

The delisting of three China-based telecom firms, namely China Mobile, China Telecom and China Unicom from major U.S. indices in compliance with a November executive order by President Trump added to the sector unease. The firms boasted large numbers of passive investors and reportedly wiped off significant value from the bourses. In addition, it triggered further disquiet with apprehensions that leading China-based tech giants like Alibaba, Tencent and Baidu could be banned as well, leading to a deep economic impact with probable en masse sell-offs.

Meanwhile, the combined bidding for 5G airwaves went past $80 billion in the past week as telecom firms continued to aggressively participate in the FCC-run go-for-broke auction. The auctioning of some of the airwaves in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum — widely known as the C-band — is likely to bring the United States at the forefront of the 5G race and thwart the increased 5G dominance of South Korea and China. The Auction 107 is offering 280 MHz of spectrum in the 3.7-3.98 GHz band that is likely to provide key mid-band spectrum for potential 5G deployments in the next few years. The C-Band offers significant bandwidth with better propagation characteristics compared with mmWave, which has a relatively shorter range and requires a high density of sites to achieve optimum coverage. Consequently, the airwaves are deemed to be prized assets for carriers that lack considerable mid-band spectrum holdings. The auction is widely expected to unlock superfast 5G networks across of the country, thereby generating healthy revenues that are likely to offset the high auctioning expenses.

Regarding company-specific news, preliminary results, product launch, deals and divestment primarily took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.     Knowles Corporation KN recently offered a glimpse of fourth-quarter 2020 results when it announced preliminary expectations for the to-be-reported quarter. The preliminary figures reflect that both revenues and earnings in the fourth quarter are likely to be well above the high end of the earlier guidance. The improved performance is likely to have been driven by better-than-expected demand for MEMS microphone in multiple markets. The company is also likely to have witnessed healthy traction in the Hearing Health business, while Precision Device revenues are expected to be within the previous guided range owing to COVID-19 woes.

Earlier, in concurrence with third-quarter 2020 results, Knowles had offered guidance for the fourth quarter and expected non-GAAP revenues in the range of $210-$225 million. Non-GAAP earnings were projected in the band of 27-33 cents per share. Currently, management expects non-GAAP revenues to be around $243 million, while non-GAAP earnings are likely to be within the band of 36-40 cents per share. Non-GAAP gross profit margin is estimated in the range of 37-39%, up from prior expectations of 36-38%.   

2.     Onto Innovation Inc. ONTO has enhanced its product inspection and detection portfolio with the launch of Dragonfly G3 inspection platform. Designed to meet the most advanced 2D and 3D sensitivity requirements for advanced packaging and specialty device manufacturers, the product is likely to be a boon in identifying low contrast defects that hitherto went unnoticed.

Backed by an optical system with sub-micron resolution, the Dragonfly G3 platform significantly improves 2D defect detection capabilities in bright field, dark field or Clearfind illumination mode that eliminates high-contrast graininess seen under conventional illumination. Scanning relatively 30% faster than its predecessor, it also enhances 3D defect detection capabilities by leveraging a redesigned 3D metrology system called the LT-200. The platform is equipped with Discover Defect software, which provides actionable value to raw data through its intelligent, real-time analytics for complex applications in 5G, high-performance computing and DRAM packages.

3.     Nokia Corporation NOK has secured a contract for an undisclosed amount to deploy key infrastructure solutions for Tele2 subscribers in Sweden, Latvia, Lithuania and Estonia. In addition to improved network performance, the solutions are likely to accelerate the digitization drive of the leading European telecommunications operator with distributed cloud core offerings.

Nokia’s cloud core solutions will provide automation and optimization of the entire life cycle management of Tele2’s networks. The Cloud Packet Core fully integrates with a service provider’s own platform solutions for flexible deployment choices and will likely enable Tele2 to lay the foundation for 5G services. The solution integrates fixed wireline access into the 3GPP cloud-native core architecture for wireless and fixed convergence and will support both 4G and 5G core network functions.

4.      Telefónica, S.A. TEF recently announced that it has inked a definitive agreement to divest non-core mobile phone masts in Europe and Latin America to U.S.-based telecom infrastructure operator American Tower Corporation. The transaction, worth €7.7 billion euros ($9.41 billion) in cash, is likely to help the company reduce its huge debt burden.

Per the deal, Telefonica is selling 30,700 tower sites across Spain, Germany, Brazil, Peru, Chile and Argentina as it seeks to de-lever its balance sheet. At a time when most European firms are aiming to consolidate their position in the market for aggressive 5G rollouts, the company is taking a seemingly divergent path in a concerted effort to improve liquidity.  

5.      Viasat, Inc. VSAT has inked a distribution contract with a subscription-based television service provider — SKY Brasil — to expand the presence of superior connectivity and satellite Internet across Brazil. The move is a strategic fit as service providers are striving to provide best-in-class broadband connectivity while addressing the burgeoning network requirements of customers, especially in the underserved areas of Brazil.

As part of the agreement, SKY will be responsible for providing on-site technical assistance and selling Viasat’s reliable and superfast satellite Internet service across Brazil. With an unrivalled distribution network, the Brazilian operator has left no stone unturned to give a first-hand access of uninterrupted connectivity with avant-garde home services and home automation.

Price Performance

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, Arista has been the best performer with its stock gaining 7.7%, while AT&T was the biggest decliner with its stock falling 4.3%.

Over the past six months, Qualcomm has been the best performer with its stock appreciating 41.2%, while AT&T was the sole decliner with its stock falling 4.9%.

Over the past six months, the Zacks Telecommunications Services industry has rallied 1.2% on average and the S&P 500 has gained 19.6%.

What’s Next in the Telecom Space?

In addition to the 5G deployments and product launches, all eyes will remain glued to how the administration continues to safeguard the interests of domestic telecom firms from perceived Chinese threats as earnings season lurk around the corner.

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Nokia Corporation (NOK) : Free Stock Analysis Report
 
Telefonica SA (TEF) : Free Stock Analysis Report
 
Viasat Inc. (VSAT) : Free Stock Analysis Report
 
Knowles Corporation (KN) : Free Stock Analysis Report
 
Onto Innovation Inc. (ONTO) : Free Stock Analysis Report
 
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