The Winners and Losers of 5G During COVID-19
The coronavirus has quickly spread around the globe. Only Antarctica has been spared.
But a massive, global infrastructure buildout is still going on: the 5G mobile communications platform.
I’m not going to sit here and tell you that every 5G-related company is going great guns. Some aren’t.
But in the long term, the 5G story is still intact. And this network is becoming more important than ever.
Hundreds of millions of people in the U.S. and Europe are still stuck at home due to COVID-19. So we’re relying more on our digital devices these days than ever before.
But all of this additional data traffic is starting to overwhelm the 4G platform. Our digital highways have to get faster to handle rapidly growing data streams.
Let’s look at how a few 5G companies are faring in the face of the coronavirus.
China First
Huawei, the Shenzhen-based Chinese telecom company, saw its growth grind to a halt during the first quarter. Huawei is privately held and rarely releases earnings.
However, it felt prompted to do so as a result of the pandemic. And the results were less than stellar.
Huawei reported that its first quarter revenue was 182 billion yuan ($25.7 billion). This was a slight increase of 1.4% growth year over year. However, it was a far cry from the 39% growth the company saw in the first quarter of 2019.
Huawei also said its European network customers would see delays for the new 5G platform.
Interestingly enough, the reason for these delays has little to do with the coronavirus. Huawei is still going full speed ahead with the 5G rollout in China.
The speculation here is that, due to limited production, Chinese customers are getting priority.
Samsung Sings the Blues
Equipment manufacturers are hurting too. Samsung Electronics (OTC: SSNGY) is South Korea’s diversified electronics conglomerate.
It’s a big player in the global smartphone business. It recently said it expects painful months ahead for its 5G smartphones.
COVID-19 has completely disrupted Samsung’s smartphone supply chains. This will delay the adoption of 5G technologies.
Samsung also recently released its first quarter results. They were slightly better than Huawei’s.
It reported operating profits of 6.45 trillion won ($5.3 billion), in line with analysts’ expectations. That was an increase of 3.5% over operating profits in the same period last year.
Revenues increased to 55.3 trillion won ($45.4 billion). That was a year-over-year increase of 5.6%.
The company declined to give a full-year forecast, which has been par for the course for most reports this earnings season. It also warned that uncertainties are popping up in most of its business operations.
5G’s Bright Spot
There are only a few companies working on 5G that haven’t been affected by the coronavirus. Let’s look at tower companies.
To turn on 5G, every tower has to be upgraded. This includes new antenna arrays, new radio frequency feed lines and new base station electronics.
These upgrades can be performed by one- or two-man crews. So it’s easy to maintain social distancing.
In stark contrast to some equipment manufacturers, American Tower Corporation (NYSE: AMT) says it’s been largely unaffected by the coronavirus.
It owns and operates about 180,000 cell towers with 41,000 towers in the U.S. The rest are located in Europe, Latin America and the Middle East. And they all have to be upgraded to handle 5G.
Many companies have pulled guidance for the remainder of 2020. But not American Tower. It left this year’s forecast mostly unchanged because it has a very predictable business model.
It leases space on its towers to all of the major mobile phone networks. About 95% of its revenues are recurring.
And its leases are all long term. So this is the kind of business I don’t mind owning during a pandemic outbreak.
American Tower’s first quarter revenues increased 10.5% to $1.97 billion. Adjusted quarterly earnings jumped 14.1% year over year to $1.27 billion.
There’s no question that in today’s stay-at-home world, mobile phone networks are crucial. And smart investors will be able to differentiate between the winners and losers.