* ZTE expected to grab bulk of 4G network projects in China
* China Mobile set to lead 4G network spending this year
* ZTE to swing to net profit in 2013 - poll shows
By Lee Chyen Yee
HONG KONG, March 25 China's ZTE Corp, which
helped bring the telephone to millions of homes during the Deng
Xiaoping era, is counting on a new generation of tech-savvy
smartphone users to drive at least $7.5 billion of 4G network
projects and elevate its sagging fortunes.
Shenzhen-listed ZTE , founded in the
mid-1980s, clinched its first major overseas contract in
Bangladesh in the mid-1990s. Since then, it has been
aggressively expanding overseas and challenging telecoms
equipment manufacturers such as Ericsson and
Alcatel-Lucent in emerging markets from Asia to
But years of rapid overseas investment and chasing global
market share at the expense of profitability are finally taking
their toll on the world's No.5 producer of telecoms gear. ZTE is
now returning to its Chinese roots, eyeing 4G network contracts
from domestic mobile operators China Mobile Ltd, China
Unicom Ltd and China Telecom Corp Ltd.
"The China market is like a gold mine as telecom operators
are cash-rich," David Dai Shu, a spokesman for ZTE, told
Reuters. "It is a top priority for us by country."
China's three mobile operators plan to spend a combined 345
billion yuan ($56 billion) this year on network expansion. That
includes investment in 4G, which promises rapid data downloads
for millions of mobile users holding Apple Inc's
iPhones or Samsung Electronics' Galaxy phones.
Hong Kong-listed China Mobile, the world's top carrier with
715 million subscribers, is forking out 41.7 billion yuan from
its total spending of 190.2 billion yuan for this year to build
200,000 4G base stations covering more than 100 cities.
The Chinese government is expected to issue 4G licences
later this year.
Smaller rival China Unicom said on March 21 it planned to
spend 5 billion to 10 billion yuan annually on 4G once it gets a
licence. China Telecom has yet to announce its 4G investment.
ZTE, which has flagged three profit warnings in the past
year and is poised to post its first-ever annual loss for 2012,
is likely to grab the bulk of contracts along with its
cross-town rival Huawei Technologies Co Ltd due to its
state-backed status, analysts said.
Policy lender China Development Bank has extended a $20
billion loan to ZTE, though that was mainly for contracts in
emerging markets under government-to-government aid programmes,
the analysts said.
"They (ZTE) will get contracts everywhere, but it's in China
where I would expect that they are going to get the uplift to
their margins and therefore their underlying profitability,"
said Neil Juggins, a telecom analyst from JI Asia.
ZTE is expected to rake in a net profit of 2.37 billion yuan
this year, according to a Reuters poll of 10 analysts.
For 2012, the company is forecast to post a net loss of 2.67
billion yuan, the poll shows. That would be the first annual
loss for ZTE since it went public in Shenzhen in 1997 and in
Hong Kong in 2004.
The firm, which has lost around half its market value since
January 2012, will announce its 2012 results on Wednesday.
ZTE has spent the past decade pitting itself against
Ericsson, Huawei, Alcatel-Lucent and Nokia Siemens in
its fight for a bigger share of the global telecoms equipment
In some cases, ZTE's prices are so low that other
competitors, such as Ericsson and Huawei, would rather walk away
than match its bids, industry sources said.
"These guys (ZTE) were bidding at dirt-cheap prices. ZTE was
making losses on all those bids for their new businesses," said
Gaurav Jain, a telecom analyst at IDC in New Delhi, referring to
the Indian market.
Officials at Ericsson and Huawei were not immediately
available for comment.
"Over the past few years, we have not been the lowest
bidders for some projects in countries such as India," said
ZTE's spokesman Dai, declining to elaborate.
"The telecom equipment sector is experiencing a price
downtrend due to telecom carriers trying to keep costs down
because of the current global economic climate," Dai said.
Low pricing, as well as government probes from the
Philippines to the United States and telecom regulation changes
in markets such as India, have added to ZTE's woes and weighed
on its bottom line.
ZTE said its expected 2012 net loss was mainly due to a
delay in some overseas projects and low-margin contracts in
markets such as Africa and South America.
Mixed messages from management have also dulled investor
appetite for its stock.
After issuing a profit warning for the first nine months of
2012, executives told analysts in October that ZTE would turn
profitable for 2012. But a few months later, the firm warned of
a net loss for the year.
"We have a small number of ZTE shares, but I'm not buying
any more as we've been misled by the company before," said a
China-based fund manager, declining to be identified as he was
not authorised to speak to the media.
Some industry executives are also wondering whether all that
huge capital spending announced by the telecom carriers would
materialise this year as continued global economic worries
curtail telecom spending.
"I'm a little conservative for the first half of the year
because we still need to see capex announcements from China's
telcos for this year and whether that spending will follow
through for this year," said Chris Ye, a telecom analyst with
Mirae Asset Management, which owns ZTE shares.