(Source: Panoramic Vision)
Economic Observer reporter Li Huaqing, Shen Yiran, Zhang Yanzheng
The U.S. Department of Commerce’s ban on ZTE not only caused ZTE to fall into a “shock state”, but also suffered from ZTE's upstream and downstream supply chain vendors. "Lastly seen on the Internet ZTE was sanctioned by the United States and felt that it was far away from itself. It was a matter of high-level people. It suddenly found that this matter was on the side." “Employees of a Shenzhen-based technology company reported to Economic Observer that her company is providing services for ZTE.
On April 19, the human resources department of this company urgently notified all employees of the company who were in charge of the production of the Zhongxing line body to take a holiday, and initially decided to take a leave of 4 days, and the production lines were discontinued.
The Economic Observer learned that due to the impact of the ZTE incident, the company has already had thousands of employees on vacation, and the time of resumption of work is still unknown. For personnel recruitment, the previously submitted requirements, even if approved by the leadership, have all been zeroed. From April 20 onwards, if you need to recruit monthly salary personnel, you need to agree with the chairman and sign it.
If ZTE fails to survive this difficult time, many small and medium-sized suppliers and employees will be affected. Apart from 80,000 employees, ZTE's suppliers, and channel providers affected by ZTE Corporation, a considerable number of ZTE’s joint ventures and joint ventures will fall under the covers.
On April 20, ZTE's official website and official Weibo issued a statement saying that before the relevant investigation has been concluded, the BIS (US Department of Commerce’s Bureau of Industry and Security) insists on the most stringent sanctions imposed on the company. Fair, we can't accept it! ”
At 2:30 in the afternoon, ZTE held a press conference in response to the US Commerce Department’s implementation of the export ban.
At the conference, Yin Yimin, chairman of ZTE Corporation, said that the US ban may cause ZTE to enter a state of shock and directly damage the interests of the company’s employees, operator customers, terminal consumers and shareholders all over the world and expressed their firm opposition.
Yin Yimin also said that ZTE organized 65,000 employees to conduct compliance training last year and fully cooperated with the prosecutors appointed by the US to provide 135,000 pages of documents. In terms of compliance, it invested over US$50 million in 2017 and plans to spend more on compliance this year.
In addition, Yin Yimin opposes the politicization of trade. He said that he will increase investment in R&D, and he believes that asking for help is not as good as asking for help. He opposes the unilateralism of certain countries that undermines the global industrial chain. At present, the core components of ZTE's main products are heavily used by its own R&D-designed special chips, but there are still large quantities of general-purpose devices that are inevitably outsourced.
This is the first time that ZTE has responded strongly since the U.S. Department of Commerce announced that US companies would not be able to sell components to ZTE within seven years on April 16. ZTE Corporation stated in its statement that "declining orders will not only seriously endanger the survival of ZTE, but also hurt the interests of all ZTE's partners including a large number of US companies." Although ZTE is facing the US Department of Commerce, it is still not clear how the final event will go. However, the supply chain of the world-famous telecommunications operators is already in a state of turmoil.
At present, from the public information, the specific number of ZTE's suppliers does not have clear information.
According to the information disclosed in the 2017 financial report of ZTE Corporation, Shenzhen Zhongxing Kangxun Electronics Co., Ltd. is a wholly-owned subsidiary of ZTE Corporation and is a manufacturing enterprise. According to industry sources, the reporter disclosed that the company's responsibility for the supply chain of ZTE is to purchase materials from this company. According to the reporter's inquiry, the company was founded in 1996 and mainly engaged in the design, production and sales of electronic products and accessories and integrated circuit products. The company has also invested in four foreign companies.
As early as 2010, ZTE held a supplier high-level CSR (Corporate Social Responsibility) conference to disclose the participation of more than 500 suppliers. According to the 2017 financial report released by ZTE, on December 31, 2017, the top five suppliers had prepaid more than 90 million. According to media reports, in 2017, ZTE’s largest supplier provided ZTE with US$500 million in products, but which company is still uncertain.
Xie Yushan, research fellow of Jibang Tuobei Industrial Research Institute, told reporters that mobile phone chip maker Qualcomm (more than 50% of ZTE's Snapdragon processors) will take several months to replace chip suppliers at this time, especially for various product requirements. The specifications are not the same, and even the entire phone must be redesigned, including the main board, core components, and antennas. This process will reduce the competitiveness of ZTE in the smart phone market.
This sanction has also affected many U.S. companies. Yang Xu, president of Intel China, responded to the media that he will abide by the ban of the US Department of Commerce. Qualcomm, which provides mobile baseband chips to ZTE, disclosed that ZTE is not a large customer whose revenue contributed more than 10%. Revenue from ZTE’s Aca-cia share, which accounted for nearly 30% of the company’s revenue, was hit hard. The US Commerce Department’s ban resulted in Acacia’s shares tumbling more than 30% on the day. Acacia stated that the company suspended the affected transactions. 15% of the revenue comes from ZTE's Oclaro Inc. The stock price also fell immediately.
Xie Yushan told reporters that Acacia, Oclaro (acquired by Lumentum, the US optical component supplier) and Finisar, and Acacia’s main customer are ZTE. In terms of revenue, ZTE accounted for 30% in 2017 and 32% in 2016 in 2015. It is 28%. In the future, Acacia may shift its focus to the development of the data center interconnect (DCI) market, but it is still difficult to make up for the lack of ZTE (ZTE is the world's third largest optical systems manufacturer) in the short term. Oclaro accounted for about 15% of its revenue in Q1 Z1 in 2018. Others such as Finisar and NeoPhotonics ZTE accounted for about 2-3% of its revenue. It has a great impact on upstream components of optical communications and is difficult to solve in the short term.
According to the disclosure report of ZTE Corporation in 2017, there are 7 important subsidiaries of the company, except one registered in the United States, and the remaining 6 are all China. There are five joint-venture companies in ZTE, three of which are in China. There are 34 joint ventures of ZTE.
Back to the quagmire
In fact, ZTE is not the first time to stand on the cusp of Sino-U.S. trade.
In March 2016, the U.S. Department of Commerce announced that on the ground of violating U.S. export control laws and regulations, ZTE Corporation and other Chinese companies were included in the trade blacklist, and ZTE adopted measures to restrict exports.
According to the U.S. Department of Commerce, ZTE plans to use a series of embarrassing companies to “resell controlled goods to Iran, in violation of U.S. export restrictions laws,” and the company’s actions “do not meet U.S. national security or foreign policy interests.” After the U.S. government announced the sanctions, ZTE issued a statement at the first time saying that as a global company listed in Shenzhen and Hong Kong, ZTE is committed to complying with international industry practices and the laws and regulations of the countries where it is located, and stressed that ZTE has always been active. We will cooperate with all relevant U.S. agencies to investigate and will continue to maintain a cooperative attitude. We will also maintain communication with all parties concerned and work hard to find a solution to the incident as soon as possible. ”
In March 2017, ZTE reached a settlement agreement with the U.S. government. ZTE agreed to pay a fine of USD 892 million (equivalent to CNY 5.6 billion). Another $300 million fine is suspended. If the agreement is not violated within 7 years after the agreement is signed, the penalty will be waived. According to the accounting standards, the astronomical fine of US$892 million was included in the 2016 financial statements, which directly led to the loss of earnings from ZTE's 2016 earnings. In 2016, ZTE’s net loss attributable to ordinary shareholders of listed companies reached 2.357 billion yuan.
In 2017, ZTE's net profit attributable to ordinary shareholders of listed companies was 4.556 billion yuan, which seems to have come out of the shadow of being penalized by the United States.
According to ZTE's business division, the main business is divided into operator network, government enterprise affairs and consumer business. In the wireless network field, in September 2017, ZTE completed the testing of all items in the second phase of the 5G technology R&D trial; the cable network In the field, ZTE completed China Mobile's first OTNVC cross-functional live network test; in the field of government and enterprise affairs, ZTE won the bid for multiple grid projects; in the consumer business, ZTE released Gigabit mobile phones and folded dual-screen mobile phones.
For the outlook of 2018, ZTE once said that it is necessary to strengthen the image of the pioneer of 5G, promote the global 5G commercial process, build a more open cloud ecosystem of government and enterprises, and reshape the domestic mobile phone brands. All this, perhaps because the U.S. Department of Commerce revisited old issues, imposed a 7-year ban and may impose a fine of 300 million U.S. dollars.