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Zhongxing crisis relieves the dawn of unspeakable split, reorganization or final destination

via:博客园     time:2018/5/9 14:16:15     readed:73

中兴危机解除难言曙光,拆分重组或成最终归宿

Lei Fengwang Note: The author of this article is Lei Feng network (public number: Lei Feng network) columnist the old solution, the article first published in the WeChat public number "ICT reader".

Since the US Department of Commerce activated the refusal order for ZTE on April 16, the U.S. trade delegation completed its first round of economic and trade negotiations with China on May 4. ZTE Corporation has been in the “shock state” for 19 days.

The latest development is when the spokesperson of the Ministry of Commerce of the People's Republic of China asked the reporter to ask questions.During the Sino-U.S. economic and trade consultation held from the 3rd to the 4th, the Chinese side negotiated solemnly with the United States regarding the ZTE Corporation case. The U.S. side stated that it attaches importance to China’s representations and will report to the U.S. president on China’s position.

In view of this progress, the Chinese public opinion is generally optimistic that with the government's blessings, the ZTE event ushered in a turnaround and is expected to be resolved in the short term. On May 6, ZTE Corporation also issued an announcement saying that the company has formally submitted an application for suspension of ZTE's refusal order to BIS, and submitted supplementary materials in response to the refusal order according to the BIS guidelines.

However, on the premise that "there are still big differences on some issues" between China and the United States, relying solely on the U.S. side's "importance on Chinese representations," the "opportunities for turning sides" are somewhat blind. .

What needs to be known is that the US Secretary of Commerce, Wilbur · Ross, who announced the refusal to activate ZTE’s refusal orders, was the number two figure of the US delegation to China. He once stated clearly that ZTE’s penalties were an isolated incident and The US trade friction has nothing to do. Therefore, the U.S. side's emphasis on China’s representations and will report to the U.S. president on China’s position may not be good news.

As everyone knows, Trump, who is a businessman, is best at bargaining. He will lift the ZTE embargo on the terms of negotiation for Sino-U.S. trade. It is undoubtedly an increase in Trump’s bargaining chips and asking prices; for China, it will be It is both unreasonable and unwise to bundle the country’s trade interests with the success or failure of a company, especially in the context of ZTE, which is a corporate entity, which has become “negative assets”.

(a) has become a "negative assets" of ZTE

In the settlement agreement reached with the U.S. Department of Commerce in March 2017, ZTE Corporation had violated U.S. export control laws and agreed to plead guilty and pay fines for providing information and other actions in violation of relevant U.S. laws and regulations during the investigation process. Accepting the U.S. Department of Commerce’s seven-year refusal order is only adding an exemption that can be suspended if it complies with the requirements of the agreement.

The U.S. Department of Commerce violated the ZTE Corporation's obligation to implement the refusal on the grounds that the ZTE Corporation was unable to perform its duties in accordance with the agreement, causing ZTE to enter a state of shock, exposing the huge commercial risks that not only threatened its own survival, but also served more than 160 countries worldwide. The normal business development of telecommunications service providers and government and enterprise customers in the region has also had a serious impact.

After the refusal order came into effect, due to the inability to obtain the relevant core components from the US market, ZTE’s contract for providing equipment and services to domestic and overseas operators and government-enterprise customers has basically failed to perform. If it cannot be resumed in a short period of time, it is bound to trigger related contracts. Penalties and claims will undoubtedly worsen for ZTE Corporation.

Even with the most optimistic estimate from the industry, ZTE Corporation can get rid of the current crisis by paying a fine to the U.S. government again. However, it can only restore the refusal order to suspension, and the seven-year refusal order will remain horizontal. On the sword of Damocles, the risk persists.

For customers twice affected by the embargo and affecting the normal business development, how likely is it to place their own development in the embargo risks that ZTE cannot completely eliminate? Especially those overseas market customers. In March 2016, the US Department of Commerce punished ZTE for the first time. Although the export embargo measures were only released within two weeks of negotiations, the ZTE Corporation’s revenue in overseas markets fell by 9%, especially in the African market. 17.6%, the European, American and Oceanian markets fell by 11.5%.

This time, the seven-year refusal order was activated for the first time, further clarifying that its starting power is completely in the hands of the US, and accounts for more than 43% of ZTE's annual revenue for the entire year in the context of the increasingly tight Sino-US trade situation. The stock market may inevitably be re-shuffled in 2018.

As for domestic customers, although they will not be as far away from ZTE as overseas customers, the risk aversion will remain an important consideration for their suppliers of choice. In particular, the domestic market will be upgrading from 4G to 5G in the next few years. At a critical moment, ZTE's disadvantage will be more prominent than its domestic rival, Huawei.

The narrowing of the upstream market space will not only seriously damage Zhongxing’s already large company body, causing contraction of business, falling revenues, and downsizing of layoffs. It will also result in a chain impact on the domestic supplier’s industrial chain downstream of ZTE and will affect the development of the industry. And the industry situation.

Therefore, the U.S. Department of Commerce’s “Zhongxing” company’s “illegal,” “trustworthy” hat and the seven-year refusal risk that can be activated at any time on top of ZTE’s company’s head will make ZTE’s company difficult to normalize. ZTE Corporation, as a corporate entity, has inevitably turned into a “negative asset” that is in urgent need of disposal.

(B) Splitting and reorganizing Zhongxing

The disposal of ZTE Corporation can be considered from both inside and outside.The purpose of normalizing business is to completely break away from the shackles of the refusal order, and to maintain the cumulative value of the development of ZTE for more than 30 years. Therefore, it is a more pragmatic choice to restructure and regenerate ZTE after it is dismantled.

Founded in 1985, ZTE Corporation has grown into a leading integrated communications solution provider in the communications industry after more than 30 years of development. With the upgrading of communication technologies, ZTE Corporation started with digital switches through its local advantages, government support, and R&D investment, and expanded its business to three major segments: operator networks, corporate affairs, and consumer services. In 2017, ZTE achieved revenue of 1088. Billion yuan, total assets reached 143.9 billion yuan.

According to its 2017 financial report, ZTE has invested more than 10% of its sales revenue in research and development every year. It has set up 20 R&D centers in China and overseas, and has more than 30,000 R&D staff in 80,000 employees. There were more than 69,000 patent assets created for the company and more than 30,000 patents were authorized worldwide.

In addition, ZTE Corporation complies with the government's “Going Global” overseas development strategy and has established 107 branches worldwide, providing products and services to customers in more than 160 countries and regions, and accumulating abundant overseas market customer resources. It is believed that if there is no move by ZTE Corporation's management in 2012, ZTE, which has reached a scale of 100 billion revenue, will undoubtedly usher in a better future in the 5G era. Therefore, under the crisis of the embargo, the cumulative value of maintaining the entire development of ZTE for more than 30 years is far more pragmatic than maintaining the existence of ZTE as a corporate entity.

From the 2017 financial statements, it can be seen that the three major business units of ZTE Corporation have relatively weaker competitiveness in the consumer business, which accounts for about 32% of their revenues. Their mobile phone terminal market shares rank behind and their profitability is also poor, so it can be as 2017. The Nubian mobile phone business will be listed for sale in the same year.The end market has sufficient competition, and one ZTE-branded mobile phone will have less impact on the end-user market.

The operator's network business, which accounts for more than 58% of revenue, is the core asset of ZTE. It is the focus of ZTE's R&D investment and overseas expansion. It is also the industry carrier for its 5G pioneer, but it is also the business that has suffered the most after the embargo. Therefore, in order to preserve this core asset and keep it away from the refusal threat, cutting it out of ZTE Corporation as a whole and implanting it in other entities for regeneration should be the most pragmatic option at the moment.

Less than 10% of the remaining income can be retained in ZTE's business as a business entity to cope with the US Department of Justice’s three-year observation and the U.S. Department of Commerce’s seven-year refusal order in order to achieve the purpose of discarding and protecting cars. .

(III) Reengineering Fiberhome Technology with ZTE Assets

The cutting out of the operator's network business from the overall company of Zhongxing to find suitable entities to be implanted requires the relevant departments to consider from the perspective of a game in the country. Leading companies in the domestic telecommunications equipment manufacturing industry, including Huawei Technologies, Datang Telecom, China Putian, and other state-owned entities from Huawei, can consider that, from the perspective of development momentum and business structure, FiberHome Technology should be able to assume the right person to make its regeneration mission. .

Feng Hongmiao is a state-owned enterprise under the direct management of the SASAC. It is backed by the strengths of Wuhan Research Institute of Posts and Telecommunications, and is under the leadership of the listed company entities such as FiberHome Communications, Vision Technologies, and Changjiang Communications. It is the core enterprise of China Optical Valley. It has just recently been investigated and investigated by the country’s neighbors.

The integration of ZTE assets into the campfire can achieve complementary advantages. FiberHome Technology is a leading company in optical communications, but lacks strength in wireless communications. With the injection of network assets of ZTE operators, Fiberhome Technology will be able to form core competitiveness in the end-to-end communications field, especially in the development of 5G industry. Pick up the banner of leading technological innovation.

The overall injection of ZTE's assets will greatly strengthen the business strength of FiberHome Technology. As the revenue scale grows, ZTE's overseas market resources will also be fully deployed and the globalization will be expanded. Since ZTE’s overseas projects have many export credit projects supported by domestic policy banks, the acceptance of the FiberHome technology, which is a state-owned enterprise, can also reduce project risks and business losses to some extent.

For the vast majority of ZTE's 80,000 employees, as the business is integrated into FiberHome Technology, it will gain a more stable development platform. As a state-owned enterprise, FiberHome Technology is undoubtedly stricter in corporate governance and can avoid the detour of ZTE.

At the practical level, since ZTE is a listed company, its assets can be split through open methods such as equity transfer. For the United States, transparent open-market asset operations can meet procedural requirements to dispel their doubts; at the same time, for relevant export companies in the US, beacons replace ZTE to continue procurement cooperation for its own business growth. More positive effects.

(IV) Reconsideration of ZTE

The split and reorganization of ZTE Corporation will undoubtedly touch many interests, especially the controlling shareholder of ZTE.

The annual report disclosed that ZTE’s largest shareholder and ultimate controlling shareholder as the subject of the listed company is Shenzhen Zhongxing New Communication Equipment Co., Ltd. (abbreviated as “Zhongxing New”), accounting for 30.34% of the total issued shares of the company. Zhongxingxin is positioned as a state-owned legal entity. Its four major shareholders are Zhongxing Virture, which holds 49% of the shares, Xi'an Microelectronics, which holds 34% of the shares, Aerospace Guangyu, which holds 14.5% of the shares, and Guoxing Ruike, which holds 2.5% of the shares. .

Among them, Xi'an Microelectronics is affiliated to China Aerospace Electronics Technology Research Institute and is a state-owned large-scale scientific research institution; Aerospace Guangyu is affiliated to the Aerospace Science and Industry Shenzhen (Group) Co., Ltd. and is a wholly state-owned enterprise. These two represent state-owned shares, holding only 48.5% of the shares. Guoxing Ruike is an unknown limited partnership company that was established in 2016.

The largest shareholding company, Zhongxing Wei Xiantong, is a private enterprise represented by Hou Weigui, the founder of ZTE. Through the inquiry of the National Enterprise Credit Information Disclosure System, a total of 39 shareholders can be seen, including Zeng’s previous executives such as Hou Weigui and Wei. In Sheng, Shi Lirong, He Shiyou, Yin Yimin and others, Yin Yimin and Wei Zaisheng are still holding shares of senior executives in ZTE. Shi Lirong was the president of the company when the North American Department of Commerce found that it had signed the two reports on violation of the "Regulations on the complete rectification and regulation of company export controls" and "Import and Export Control Risk Evasion Program."

Therefore, in ZTE’s controlling shareholder “Zhongxing New”, the proportion of shares held by senior executives funded by Hou Weigui, Shi Lirong, and Yin Yimin has exceeded the state-owned shares. The splitting of ZTE assets and the restructuring of state-owned shareholders will have the greatest impact and the greatest resistance for the private-sector company ZTE, which represents the shares of ZTE's senior management.

However, rethinking the series of sanctions against ZTE Corporation by the US Department of Commerce is objectively the heavy price of ZTE's violation of commercial standards. What is exposed behind this is that ZTE Corporation, a listed company, has failed to manage its business. Tough lessons, the company's management can hardly be blamed.

ZTE’s three penalties have been traced back to a series of consequences caused by its violation of U.S. export control regimes and re-exports of U.S. regulated products to sanctioned countries including Iran and North Korea. At the same time, company executives also supported the legal department in formulating and organizing the implementation. The related risk aversion plan, which interferes with the judicial process during the investigation, puts the company’s operations at a high risk of violating the laws of the host country and violates the commitment obligations of the company’s shareholder’s creditworthy operations, and the company’s value and state-owned shareholders’ state assets. The resulting losses shall be mainly responsible.

Therefore, relevant departments and state-owned shareholders should actively intervene in the governance of ZTE Corporation and its controlling shareholder Zhongxingxin, and timely initiate the accountability mechanism for the company’s decision-making executives and related managers to ensure the smooth implementation of asset restructuring and reorganization. It minimizes the loss of state-owned assets and does its utmost to protect the rights of nearly 80,000 grassroots employees.

[Conclusion]

After May 6th, ZTE Corporation formally submitted an application for suspending the refusal order to BIS, whether BIS can approve the application of ZTE is still unknown. However, suspending the refusal order again will not completely eliminate the market crisis faced by ZTE Corporation and start targeting as soon as possible. The split and reorganization of ZTE assets is still the most pragmatic option for national interests, industry development, and employee rights and interests.

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