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Entries in ZTE (13)

Wednesday
Aug202014

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.

Friday
Jan102014

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.

Friday
Jan032014

ZTE replaces long-serving handset chief

In a New Year reorganisation, ZTE has sidelined He Shiyou, the long-serving head of its handset group, and replaced him with Zeng Xuezhong, currently China handset sales chief.

He, 47, has headed the devices business since 2004.

ZTE says the move is aimed at bringing new blood into senior management ranks, although Zeng is just seven years younger than He.

The move follows a decline in terminal sales over the last 18 months. Device revenue shrank 12.5% in the first half of 2013 and 4% during 2012.

ZTE also said it would spin the devices group off as a standalone unit. The division, which accounts for a third of total revenue, won't be a separate company, but will be responsible for its own procurement, R&D, sales and other functions.

ZTE, China’s second-largest telecom vendor, last year posted a 2.84 billion yuan ($470m) loss.  It has forecast a full-year profit for 2013.

A company source told Sina Tech that Zeng had replaced He because of the financial results, his age and greater grasp of the internet. Traditional handset vendors like ZTE are being challenged by new brands like Xiaomi, which skilfully use online channels, and e-commerce platforms like JD.com.

“Here the fast fish eats the slow fish,” CEO Shi Lirong is reported to have said.  "The highly efficient will destroy the inefficient... we must carry out strategic change, organisation change and cultural change."

As well as shifting He Shiyou, who keeps his role as executive director, ZTE said it would also step up its efforts in urban public IT, new energy tech and mobile internet.

In other appointments, it has tapped EVP Zhao Xianming as CTO and appointed senior VP Pang Shengqing as head of the enterprise group.

Friday
Aug232013

4G contracts: China Mobile throws EU firms a bigger bone 

Huawei and ZTE have once again won the biggest share of a major Chinese telecom tender, despite being undercut by Nokia Siemen.

In what is certain to be the largest telecom tender this year, China Mobile handed out 20 billion yuan ($3.27b) in contracts to build its TD-LTE network in 100 cities.

Nokia Siemens surprised the industry when it was revealed during the tender that it had bid the lowest price - the first time a foreign vendor had done so. Despite that, it won no more business than other foreign players, and much less than the two large local firms.

In the usual deft stage-management, Huawei and ZTE emerged with 26% each of the total tender, while the three foreign vendors, Ericsson, Nokia Siemens and Alcatel Shanghai Bell, were allocated 11% apiece. Small Chinese players Datang, Potevio, New Postcom and Fiberhome picked up the remainder.

Chinese telecom news site C114 noted that the 67% share won by local firms was down slightly from their 70% share of China Mobile's trial network last year.

The market share number is more than academic. EU Trade Commissioner Karel De Gucht has warned he would push ahead with his subsidies case against Huawei and ZTE if European firms did not win a fair share of Chinese domestic contracts.

Chinese firms have a 25% share of the EU market, according to CICC telecom analyst Chen Haofei. The 33% of these contracts that have gone to European firms are probably enough to stave off De Gucht's attentions.

As well as the size - 207,000 base stations - this contract is strategically important as the first large-scale tender for the China Mobile's 4G network. The major winners are best-placed to pick up follow-up contracts as the network expands over the next decade or so.

Monday
Jan212013

Huawei up, ZTE down, NSN turns a corner

A busy day for vendors: Huawei expects a profit, ZTE a loss, and the bloom could be returning to Nokia Siemens.

Huawei has defied the tough telecom gear market to report expected 33% higher income of 15.4bn yuan ($2.48bn), with sales up 8% to 220.2bn yuan ($35bn).

It has forecast revenue to rise 10-12% in 2013.

The non-core divisions maintained their contributions. While the telco business accounted for 72.8% in sales (up 6.8% over 2011), the consumer division - which includes handsets and modems – made up 22.0% (up 9.3%) and the enterprise group 5.2% (up 25%).

Offshore sales accounted for 66% of total sales, down from 67.9% in 2011.

CFO Cathy Meng said the company had had kept general expenses under control, allowing it to “allocate more resources to bolster the front line and ensure continuous improvements on customer delivery and service quality.”

ZTE‘s expected loss wasn’t such a huge surprise, given its trying year, although investors still marked its stock down 1.63%.

ZTE said it expects a full-year loss of 2.5bn-2.9bn yuan ($379m-$439m). Operating revenue fell 18% in the last quarter and margin shrank by 11 points as a result of it chasing low-margin contracts in Africa, South America, Asia, and China.

As in previous quarters ZTE attributes the loss to an array of factors, “including postponed execution of systems contracts, decrease in revenue from terminals in the domestic market, and delayed progress of international projects.”

Meanwhile, Nokia Siemens is planning a bond issue in the next quarter – its first ever foray into the public finance markets, FT.com reports.

It aims to raise as much as €700m ($932m) with high-yield bonds to pay down bank debt and fund future investment, paper says.

The move is significant given the potential for a future flotation of the business, which has been recently rejuvenated by its parents. Nokia and Siemens talked to private equity groups about a sale of NSN last year but failed to strike a deal, forcing the groups to bolster its balance sheet with a further €1bn of equity.

Helped by that equity injection, steep cost cuts and asset sales, NSN has tallied “three consecutive quarters of underlying profitability for the first time in its history. That has led to renewed talk among financiers about a potential flotation or sale next year.”