Chinese mobile infrastructure and phone manufacturer ZTE Corporation announced yesterday (4 December 2012) that it has entered into a new strategic partnership agreement with China Development Bank (CDB).
Under the new agreement, CDB will expand its financing facility for ZTE to US$20bn (£12.4bn). In 2005, CDB and ZTE began their strategic cooperation based on international standard practices, agreeing a facility of US$8bn (£4.9bn). In 2009, the facility was increased to US$15bn (£9.3bn). ZTE said that CDB will utilize its strengths in integrated financial services to help ZTE achieve its strategic goals, and drive the company’s overseas investment and business development in priority sectors.
Hou Weigui, chairman of ZTE, said: ‘ZTE will leverage the CDB’s financial support and grasp the opportunities in the markets for 4G, fixed broadband, enterprise networks and terminals, consolidate our advantages and migrate to the higher value solutions, as we aim to achieve a global top-3 position before 2015.’
The move follows the announcement in 25 October 2012 of ZTE’s first ever quarterly loss in Q3 2012. It posted net losses of 1.95 billion yuan (£193m) compared with a profit of 299.3 million yuan (£29.8m) for the same quarter a year earlier. The company blamed the losses on delays in closing overseas deals, a change in the procurement system for domestic operators and a larger number of low-margin contracts.
Analyst comment from Ovum
Matt Walker, principal analyst network infrastructure telecoms at Ovum, said: ‘ZTE signed a similar, US$15bn (£9.3bn) deal with the CDB in 2009, the same year Huawei signed a US$30bn (£18.6bn) deal with the CDB. For both vendors, these were extensions of earlier agreements. So, today’s news is consistent with past practices.
‘However, this deal comes at a crucial time for the company, and the industry. In 2009, ZTE pursued new financing with clear hopes of growing global share during the financial downturn; it succeeded in this. But three years later, telecom infrastructure markets remain weak, and no vendors are immune from the current pressures.
‘This US$20bn (£12.4bn) agreement gives ZTE a much-needed financial boost as it copes with weak sales, declining profits, and layoffs. At a time when several key rivals are struggling, and selling assets to raise cash, fresh support from the CDB may give ZTE a buffer to ride out the current turmoil.
‘But there is a risk for the company,’ continued Walker. ‘Accepting this support will make it harder for ZTE to further penetrate western European and North American markets, where policymakers are concerned about unfair competition from Chinese suppliers. This news will not go unnoticed by ZTE’s opponents, both those in the marketplace and the political sphere.
‘It is worth noting, though, that ZTE has released this news publicly, as part of its financial disclosure requirements tied to listing on the Stock Exchange of Hong Kong. Not all of its competitors have such obligations,’ concluded Walker.