Industry Index at 206.56 on the 29th... Approximately 15% Increase Over Two Weeks
[Asia Economy Reporter Kum Boryeong] As network investments begin due to increased communication traffic, benefits to telecommunications equipment stocks are expected.
According to the Korea Exchange on the 30th, the telecommunications equipment industry index recorded 206.56 on the 29th. Compared to 180.26 on the 15th, it rose 14.59% in two weeks.
Since the outbreak of the novel coronavirus disease (COVID-19), traffic has surged dramatically. Nokia recently announced that global traffic increased by 40% year-over-year. Google lowered YouTube's default video quality from high definition (HD) to standard definition (SD) due to concerns about network overload. This is because communication and video viewing through telecommunication networks increased as face-to-face interactions became difficult.
Investment in telecommunications equipment seemed delayed due to the COVID-19 crisis, but now it has become difficult to postpone further. As global telecom companies increase network investments, the traffic increase is likely to lead to early expansion of 5th generation (5G) mobile communication service investments and investments in network equipment such as backhaul and switches. In the U.S., Verizon initially stated in its early-year guidance that it would not significantly increase capital expenditures (CAPEX), but it has already raised its 5G CAPEX. The three major Chinese telecom companies have also officially announced the possibility of a sharp increase in 5G CAPEX.
Expectations for domestic telecommunications equipment exports are rising. As Huawei and ZTE secured large volumes from China Mobile, China Unicom, and China Telecom in China, the export outlook for domestic companies such as KMV has brightened. Domestic wireless telecommunications equipment companies have established collaborative relationships with Huawei and ZTE in China. In Japan, Rakuten has actively started network investments this month, and other telecom companies plan to begin 5G investments from next month, showing signs of increased exports to Japan as well.
Current analysis suggests focusing on Samsung Electronics vendors. Samsung Electronics' market share within the telecommunications equipment sector is expected to rise significantly in the second half of the year. In the first quarter of this year, Samsung Electronics' share of the global 5G telecommunications equipment market was 13.2%, up 2.8 percentage points from the previous quarter. Samsung Electronics is expected to expand in the U.S., Japan, and India markets based on its high-frequency strengths. The industry highly anticipates Samsung Electronics winning Verizon's 5G base station orders. Jeong Jisoo, a researcher at Meritz Securities, said, "Samsung Electronics was selected as a 5G equipment supplier for Verizon and AT&T in January and September 2018, respectively, but investment decisions were delayed due to COVID-19. Although the exact timing is uncertain, detailed information on Samsung Electronics' U.S. 5G business is expected to be shared within the third quarter of this year."
If Samsung Electronics' market share increases, KMV, RFHIC, Seojin System, and Ace Tech are expected to benefit. KMV has experience supplying antennas and filters to Verizon and Sprint in the U.S. Ace Tech is highly likely to be selected as a supplier of antennas and filters to meet Samsung Electronics' supply volume, and transistor manufacturer RFHIC is mentioned as a key partner when Samsung Electronics enters the U.S. and Indian markets.
Kim Hongsik, a researcher at Hana Financial Investment, explained, "The true beneficiaries of the untact (non-face-to-face) trend are telecommunications equipment stocks, whose stock prices will rise significantly from July to October. Although second-quarter earnings are not good, sales trends of domestic telecommunications equipment companies in June and July are expected to be favorable." He added, "If order announcements come from the U.S. and India, where expectations are low, especially for some companies after the third quarter, an unexpectedly explosive stock price rise can be anticipated."
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