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Entries in ZTE (16)


After a long phoney war, US takes a real shot at Huawei

After pursuing Huawei fruitlessly for more than a decade, the US has put it firmly in the crosshairs, threatening the global supply chain as well as the Chinese vendor

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ZTE to dump CEO, chairman in wake of Iran sanctions scandal

ZTE is about to dump its senior leadership as part of the settlement with the Department of Commerce over its breach of US sanctions on Iran. That's a win for the US, but would be an even bigger win if China would cop to its failings.

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ZTE: New branding, same prospects

Corporate rebranding is an easy target for snark, and ZTE isn’t helping by declaring ‘cool, green and open’ are its new corporate values. But with its nearest rivals said to be contemplating a merger, it's worth asking whether a minnow like ZTE has a future at all.

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ZTE rides China 4G rollout

China’s hefty 4G rollout has come to the rescue of ZTE’s interim result, propelling it to a healthy 1.28b yuan ($180m) profit despite a drop in handset sales.

Total revenue for the six months to June 30 was flat at 37.697b yuan ($6.14b), but carrier gear sales were up nearly 15% to 21.8b yuan.

The China 4G sales also hoisted the margin in the carrier unit by 3.9 points to 39%. In China, the margin increased nearly eight points.

ZTE said in a statement that the “substantial increment” in gross margin and profit was attributable to improved management of contract profitability and the greater sales of 4G kit in China.

By contrast, mobile phone revenue was off 16% year-on-year, which the company said was a result of lower 3G device sales in the China market.

ZTE also predicted earnings for the first nine months would be between 1.7b-1.9b in the first nine months, up 208.2% to 244.5% from a year ago.


Blowback: China's vendor financing brings its own problems

After awarding a no-bid contract to ZTE, Ethiopian telecom officials are now complaining about the high financing cost.

The news doubtless set off the schadenfreude meter at Ericsson, but bigger issue explored in this Wall Street Journal piece is the problematic role of Chinese state financing of offshore telecom contracts.

The billions of dollars in credit extended by China Development Bank (CDB) and the China Ex-Im Bank are the not-so-secret weapon behind the offshore success of Huawei and ZTE.

That’s not just my opinion. A People’s Daily editorial in March 2010 (reproduced here in Chinese on the CDB’s own website), proudly declares that “the contribution of CDB’s financial support to the international expansion of Huawei and ZTE cannot be ignored.”

According to the Journal, ZTE won the network contract ahead of western vendors in 2006 by offering $1.5 billion in low-interest financing through the state-run banks.

A World Bank investigation last year found that in awarding the contract to ZTE the Ethiopian government, which enjoys close ties with Beijing, appeared to ignore its own procurement rules that require competitive bidding. The WB report also criticized the government for giving such a big project to a single company.

Last year when Ethiopia Telecom issued network extension contracts it split them between ZTE and Huawei, putting itself another $1.6 billion in hock to Chinese banks. Yet even prior to that officials had been complaining that ZTE had charged too much for the original network.

Jia Chen, the head of ZTE Ethiopia, said ZTE had to charge more in Ethiopia because of the project loans' large size and the long repayment period.

Western firms also can get funding to help customers buy their equipment but, unlike their Chinese counterparts, western banks have signed an agreement to limit such lending, especially to countries with a history of debt problems.

Chinese officials routinely dismiss these arrangements as foreign ‘interference’ and insist their financial aid comes with no strings attached.

Huawei and ZTE are just as disingenuous. Eric Xu, now one of Huawei’s three rotating CEOs, told me in an interview in 2010 that the tens of billions of dollars available on credit had nothing to do with Huawei. It was merely something that banks announced for publicity purposes.

Yet it’s the vendors who are liable for repayment of the loans, as firms like Nortel and Lucent discovered after the telecom bubble burst in 2001.

Such massive amounts of easy money offer the temptation for feather-bedding, as Ethiopian officials obviously believe.

In another case, also involving ZTE, the Kenya government last year cancelled a police radio system contract. A review found ZTE had tendered its gear at double normal market prices.

China provided $50 billion in financing in Africa from 1995 to 2012, at least three or four times that provided by the US or Germany over the same period, according to Johns Hopkins University estimates.

Despite the blowback, there’s no chance that this torrent of cash will dry up. But let’s see if Chinese banks and vendors can learn the obvious first lesson and become introduce some transparency in the way they deploy these funds. A little straight talking wouldn't go astray, either.