With the markets closed during this Labour day weekend, there wasn’t a whole lot of news to report. However, one interesting development came from Samsung Electronics, which announced it had secured a $7 billion work order from Verizon Communications (NYSE:VZ) to produce 5G network equipment as companies around the world move to embrace 5G infrastructure.
With telecommunications companies working to install new 5G towers across the country, the market for related equipment has shot up significantly. As such, there’s already fierce competition between competing businesses to gobble up lucrative 5G contracts. Samsung managed to win a $6.6 contract with Verizon, which it officially announced on Monday. It’s a big deal for the South Korean company as it would cement the international presence of its network equipment business.
“Samsung winning the order from Verizon would help the company expand its telecom equipment business abroad, potentially giving leverage to negotiate with other countries,” said Park Sung-soon, one analyst in an article from Reuters. “With this latest long-term strategic contract, we will continue to push the boundaries of 5G innovation to enhance mobile experiences for Verizon’s customers,” added Samsung in an official statement.
Looking at the big picture, however, Samsung remains a relatively small player in the global telecom equipment market. Much larger companies like Huawei, Nokia, Ericsson, and Cisco all are much bigger competitors in this industry. However, considering the political issues that have emerged between the Trump administration and Huawei, contracts that would have gone to the Chinese telecom giant are now being dolled out to other, smaller businesses that don’t represent a security risk.
Despite this, Huawei has said that it’s signed over 90 separate 5G contracts, while another company, Ericsson, posted its 100th contract agreement earlier this year. For Samsung, however, this $7 billion contract alone would more than double what Samsung’s network business racked up in 2019, so it’s a big deal overall. Samsung had stated back in 2018 that it hoped to capture 20% of the global 5G market in the coming years, a goal that remains still quite off in the distance for now.
Shares of Verizon didn’t move much in response to this news, while Samsung’s stock on the Korean stock exchange is up around 3% at the moment. Overall, telecom companies haven’t done all that well so far this year, with most businesses seeing their market caps stay relatively the same since the start of 2020.
Verizon Communications Company Profile
Verizon is now primarily a wireless business (70% of revenue and nearly all operating income). It serves about 89 million postpaid and 4 million prepaid phone customers and connects another 24 million data devices, like tablets, via its nationwide network, making it the largest U.S. wireless carrier. Fixed-line telecom operations include local networks (12% of revenue) in the Northeast, which reach about 25 million homes and businesses, and nationwide enterprise services (10%). Recent investments, including fiber network construction, have supported the wireless business in addition to expanding traditional fixed-line capabilities. Verizon Media Group, the online media and advertising firm formed with the acquisitions of AOL and Yahoo, provides the remainder of revenue. – Warrior Trading News