StockBeat: U.S. Huawei Ban Lifts Nokia, Ericsson

Geoffrey Smith

Investing.com - It's an ill wind that blows nobody any good, so they say, and it's no surprise to see who's profiting from the U.S.'s decision to effectively ban Huawei from its market.

Shares in Europe's two leading makers of telecoms network equipment are both higher after early trade, with Ericsson (BS:ERICAs) rising 0.9% and Nokia (HE:NOKIA) up 1.4%. They're among very few companies gaining on a day when fear of an all-out trade war between the world's two largest economies is dominating sentiment.

As of 4 AM ET (0800 GMT), the benchmark Euro Stoxx 600 index was down 0.1% at 377.5 while Germany's DAX was down 0.5% and the U.K. FTSE 100 down 0.2%

Ominously, automotive stocks have struggled to build on the late gains they made on Wednesday after the U.S. administration decided to hold fire on levying tariffs on car imports for six months. The big auto names are all down by 1% or more, as are many of their biggest suppliers.

The Commerce Department's order Wednesday not only bans Huawei from taking part in tenders to build 5G networks in the U.S., it also makes companies like Qualcomm (NASDAQ:QCOM) require licenses to sell Huawei the chips it needs to make its equipment. As such, it could hobble Huawei's efforts to build out 5G in Europe and elsewhere too.

Less competition from Huawei means greater pricing power for the Scandinavian companies, who have lost market share consistently to the Chinese giant in recent years. Nokia last month reported a loss in the first quarter due in large measure to the intensity of competition. Investors may now allow themselves to be a little more confident in the company's prediction of profitability over the full year.

All other things being equal, the loss of Huawei means that telecoms companies, such as Verizon (NYSE:VZ) and AT&T (NYSE:T) will have to pay more for what is already promising to be a fearsomely expensive network upgrade. And of course it's also bad news for their customers, who will end up footing the bill. Given that the administration's issues with Huawei were already well-known, much of that may already be priced in.

Likewise, some of Europe's biggest operators such as Vodafone (LON:VOD) and the Netherlands' KPN have already signalled they won't use Huawei in the 'core' of their new 5G networks, although that still leaves them able to buy other, less sensitive, equipment. How badly the new licensing requirement will hit Huawei's ability to compete in that area remains to be seen.

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