Poor 2012 prompts soul-searching at China’s ZTE
BEIJING (Caixin Online) — To say ZTE Corp. had a bad 2012 would be something of an understatement.
China’s largest publicly listed telecoms equipment manufacturer released its financial report for last year on March 28 and the news was grim. ZTE(HK:763) (CN:000063) (US:ZTCOY) posted a net loss of 2.84 billion yuan ($458 million), making 2012 the first year it didn’t make a profit since it listed in Shenzhen in 1997.
Company chairman Hou Weigui blamed an overly aggressive strategy aimed at expanding markets overseas. He implied corporate governance and management were major factors.
Several telecoms industry analysts said that some of ZTE’s orders from abroad made little money and some made none at all. They said the company’s governance couldn’t support the rapid development ZTE sought.
“Actually ZTE made some adjustments to try to solve these problems back in 2011,” a source inside the company said. The source added that the huge loss in 2012 was prompting the company’s leadership to be more aggressive in fixing the problems.
Changes would include trimming the workforce, which company documents show stood at 85,232 in 2011; improve assessments of worker performance; and close unprofitable offices.‘Strategic investments’
ZTE put a lot of human resources and investment into foreign markets in recent years, said Huang Leping, an analyst at Nomura Securities Co. Ltd., a major securities and investment banking company. However, it didn’t get the returns it expected.
A researcher at Rising Securities in Inner Mongolia said that from 2009 to the end of 2011 “the gross profit margin for many orders was quite low, and some even posted a loss.” The researcher added that ZTE didn’t sign many new orders in 2012.
When he became ZTE president in 2010, Shi Lirong pursued a strategy of becoming a key supplier for 30 of the world’s top telecom operators.
In order to gain market share, ZTE was selling equipment for much cheaper than competitors like Huawei Technologies Co. Ltd. and Ericsson, an executive who once worked for ZTE’s office in Europe said.
“In the European region, a couple of projects went into the red and the company called these ‘strategic investment projects,’” the former executive said. “Some projects posted a big loss.”
Li Yong, analyst of Minsheng Securities, said ZTE lacked the experience required to expand in international markets, a problem that caused cost overruns for projects.No one is fired
As ZTE aggressively went abroad, holes in corporate governance surfaced.
“Compared to Huawei, ZTE’s overall operational capability is weak,” the source at the company said. “Employee powers and duties are ambiguous. This means efficiency is low.”
ZTE employees say that as long as they don’t make big mistakes, they won’t be fired, even if their performance isn’t good. They also say no clear system for firing employees has been set up.
China’s largest publicly listed telecoms equipment manufacturer released its financial report for last year on March 28 and the news was grim. ZTE(HK:763) (CN:000063) (US:ZTCOY) posted a net loss of 2.84 billion yuan ($458 million), making 2012 the first year it didn’t make a profit since it listed in Shenzhen in 1997.
Company chairman Hou Weigui blamed an overly aggressive strategy aimed at expanding markets overseas. He implied corporate governance and management were major factors.
Several telecoms industry analysts said that some of ZTE’s orders from abroad made little money and some made none at all. They said the company’s governance couldn’t support the rapid development ZTE sought.
“Actually ZTE made some adjustments to try to solve these problems back in 2011,” a source inside the company said. The source added that the huge loss in 2012 was prompting the company’s leadership to be more aggressive in fixing the problems.
Changes would include trimming the workforce, which company documents show stood at 85,232 in 2011; improve assessments of worker performance; and close unprofitable offices.‘Strategic investments’
ZTE put a lot of human resources and investment into foreign markets in recent years, said Huang Leping, an analyst at Nomura Securities Co. Ltd., a major securities and investment banking company. However, it didn’t get the returns it expected.
A researcher at Rising Securities in Inner Mongolia said that from 2009 to the end of 2011 “the gross profit margin for many orders was quite low, and some even posted a loss.” The researcher added that ZTE didn’t sign many new orders in 2012.
When he became ZTE president in 2010, Shi Lirong pursued a strategy of becoming a key supplier for 30 of the world’s top telecom operators.
In order to gain market share, ZTE was selling equipment for much cheaper than competitors like Huawei Technologies Co. Ltd. and Ericsson, an executive who once worked for ZTE’s office in Europe said.
“In the European region, a couple of projects went into the red and the company called these ‘strategic investment projects,’” the former executive said. “Some projects posted a big loss.”
Li Yong, analyst of Minsheng Securities, said ZTE lacked the experience required to expand in international markets, a problem that caused cost overruns for projects.No one is fired
As ZTE aggressively went abroad, holes in corporate governance surfaced.
“Compared to Huawei, ZTE’s overall operational capability is weak,” the source at the company said. “Employee powers and duties are ambiguous. This means efficiency is low.”
ZTE employees say that as long as they don’t make big mistakes, they won’t be fired, even if their performance isn’t good. They also say no clear system for firing employees has been set up.
0 Response to "Poor 2012 prompts soul-searching at China’s ZTE"
Post a Comment