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TheStreet Open House

Chinese Telecoms on West's Blacklist

ZTE says it was targeted largely because of its scale. The committee's fear that ZTE would be subject to state influence applies to "any company operating in China," it says.

Avoid their stocks until the Cold War unfreezes. Huawei (002502.SZ) shares are hovering near historical lows that are about half their worth two years ago. Since July, ZTE (0763.HK) shares have tested their lowest point since the global financial crisis.

In the United States, the chief prize among the three Western countries citing security concerns, expect local firms to pick up telecom contracts, especially around elections where candidates are under pressure to back local business.

Prime contractor candidates in the United States would be AT&T (T) and Verizon (VZ). Share prices of both show a solid performance since 2010.

And what a history: AT&T announced an award in May that it had been named a prime vendor under the U.S. Department of Homeland Security's Tactical Communications Equipment and Services contract, which has an overall value of $3 billion.

Three months later, the venerated American household name said it had scored a U.S. Navy contract to deploy a nationwide call-routing and handling network. Verizon, a massive mobile carrier, opened a 30,000 square-foot facility six years ago for the unique needs, namely security, of its federal government customers.

Other Chinese firms may make some badly needed connections abroad if Huawei and ZTE keep getting zapped.

One tipped to be on the climb again is broadband network builder UTStarcom (UTSI). Shares of the firm based in California but largely run out of China sank after 2003 following a class-action lawsuit over allegations that it had misled investors. The suit was settled in 2010, and last year new management sought to improve shareholder value by buying back $20 million of its own stock. It said this month the buyback was 65% complete.

Comba Telecom Systems (2342.HK), could grab wireless systems business overseas after growing since 1997 to 30 offices in China and 10 overseas. Prices in the company that's part of MSCI's China Small Cap Index (ECNS) have rebounded since mid-August after falling over most of the year to date due -- a problem that its 2012 interim report says arose from a delay in capital spending by mobile operators.

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