ZTE is troubled by the transition

This is the worst year in ZTE Corporation, the second largest telecommunications equipment provider in China in the past decade. On the 14th of last month, ZTE released the third quarter of 2012 performance report. The report shows that the downward trend in profits since last year has not been reversed. Instead, there has been a huge loss, and the net profit attributable to shareholders of listed companies has fallen by 254.42%-263.78%. The loss was 1.65 billion yuan to 1.75 billion yuan, which was the first quarterly loss since ZTE Corporation was listed in 1997.

Ten years ago, the world communications market was in a slump. Ericsson, the world's largest communications equipment manufacturer, announced in the fourth quarter of 2002 that the company’s losses in the current quarter continued to increase, resulting in losses for the seventh consecutive quarter. In the year, ZTE achieved a total revenue of 11 billion yuan in its main business, an increase of nearly 18% year-on-year.

This is due to the resolute decision made by ZTE at the time. When Unicom CDMA was still a drawing, ZTE re-emphasized R&D. This adventurous attitude made ZTE the biggest winner of China Unicom’s CDMA project on China Unicom’s CDMA project. Win 15% market share. Bundling China Unicom's CDMA, it is widely believed that this is a wise move by ZTE. When the PHS market grew fastest, ZTE entered the PHS market in a timely manner and gained substantial profits.

Ten years later, the global economic crisis in 2012 continued. The U.S. economy was depressed and the European debt crisis continued to spread. The demand for communications equipment from various countries fell.

However, in this round of global economic crisis, ZTE failed to spare, which was attributed to the fact that ZTE relied more on the international market. The more profound reason was that the rise of the mobile Internet gradually changed the communications industry, which was greatly affected by the economic situation. Equipment vendors to operators are facing a difficult transition period.

For the first time in years of huge losses

Shi Lirong, who took control of ZTE two years ago, had to face the biggest crisis since his predecessor. The incidents in which ZTE and Huawei were investigated by the United States have not yet subsided. The third-quarter performance of ZTE announced on October 14 broke its first loss since the company was listed in 1997. The news is announced that the stock price of ZTE A shares has stopped at the next day. The stock slumped 15.79%. At the same time, with the loss of performance, ZTE has also begun to pay cuts and streamline plans.

Regarding ZTE’s huge loss in the third quarter, Wang Ningyuan, an IT industry researcher at China Investment Consulting Group, believes that ZTE’s sharp decline in sales performance is not unexpected. On the one hand, it suffered a serious loss due to a sharp drop in industry profits caused by the global macroeconomic sluggishness. On the other hand, ZTE is facing the slowdown of equipment investment by operators and the changes in operators' income confirmation methods.

ZTE also said that due to the weakening of the global economy, the international market, the overseas investment slowdown, coupled with the previous low gross margin contracts confirmed in the third quarter, the gross profit in the third quarter had a more significant year-on-year decline. The African region with higher gross margins in history has been in the transition from old to new projects since the beginning of the year, with fewer new contracts. In the domestic market, changes in the operator's collective procurement model have a significant impact on the company’s revenue recognition method. Affected by changes in the operator’s investment structure and cycle, ZTE’s corresponding revenue scale has decreased significantly.

In fact, the performance of telecom equipment giants including Ericsson, Nokia Siemens Networks and Alcatel-Lucent is not optimistic.

Ericsson’s financial report showed that its net sales in the second quarter was SEK 55.3 billion (US$3.836 billion), a year-on-year increase of only 1%; net income fell 63% from SEK 3.2 billion in the same period of 2011 to SEK 1.3 billion. . According to Nokia's financial report, Nokia Siemens Networks' net sales in the second quarter of this year were 3.343 billion euros, down 8% year-on-year. Alcatel-Lucent suffered a net loss of more than 250 million euros in the second quarter, compared to 43 million euros in the same period in 2011.

Rethinking strategic mistakes

In the face of various external unfavorable factors, ZTE recently rethought internal issues. Shi Lirong, president, stated that ZTE will re-examine regional and product strategic layouts, and in the current situation will do some structural optimization. The representatives who have long-term losses and can't turn losses in the short term will be abolished. The integration of products with low input-output efficiency and no potential for development will control the number of employees and make structural adjustments.

Since he took over the position of president of ZTE in March 2010, Shi Lirong proposed to ZTE the “Telecom” market strategy, ie, the market is focused on big countries and large operator customers, while adopting relatively aggressive The market strategy seeks to become the world’s top three equipment makers in a relatively short period of time.

In this regard, Shi Lirong said that ZTE will be more "focused." “The core of our strategy is to focus on concentrating all our resources on our advantageous markets and superior products.” Shi Lirong said that this also means that some subtraction work may be done.

Specific implementation methods include that the strategy of “Great Powers Big T” will continue to be adhered to, but “Big T” (ie, mainstream operators) will have a choice, “guarantee the advantage market to obtain greater gains.” In addition, some weaknesses The loss-making market will be structurally optimized, such as being incorporated into other markets.

As for ZTE, the biggest opportunity at present is 4G. In Li Xiang’s view of Feixiang.com, previously, due to the uncertainty of the 4G license policy, China Mobile’s investment in TD-LTE was slow. “At present, the country is very likely to issue 4G licenses within 6 months. If China Mobile launches TD-LTE deployment, it will be beneficial to ZTE because ZTE has accumulated deeper in this area. This is ZTE’s biggest opportunity. ."

Structural adjustment twists and turns

In the face of the current dilemma, 70-year-old old Zhongxing people, and Hou Weigui, chairman of ZTE Corporation, are still clearly aware of the current communications industry.

He said, “Everyone says that life is not easy. In fact, the industry’s profits have not been reduced at all. It's just that the industry’s profits are shifting, such as being transferred to terminal manufacturers like Samsung Apple and Internet companies like Google.”

Due to the transformation of information technology, the Internet is profoundly affecting the development of the communications industry. In particular, the development of the mobile Internet has caused telecom operators to feel a sense of crisis. If you do not comply with technological changes and transform your business, telecom operators are likely to be marginalized as the underlying pipeline of many Internet companies. As equipment providers of telecom operators, telecom equipment manufacturers should see this great change and undergo structural transformation.

“Business innovation and de-telcoization are the weapon to ease this phenomenon.” Shi Lirong thinks, “Our opportunity should be said to exist, and it is very clear, because from the global situation, the demand for wireless and broadband is With explosive growth, opportunities in the market are the real opportunities.Broadband is not only shown in the access layer, but the cost of bearer transmission behind it is also very large.The specific performance is in China. ZTE has become China Mobile’s largest equipment in TD-LTE. supplier."

Although Shi Lirong has been firmly convinced that ZTE’s strategic orientation and decision-making during the past two to three years are correct, there are only problems in tactics and execution paths. However, it cannot be denied that even the problems of tactical and executive officers’ paths are for ZTE. Also fatal. The most obvious strategic development feature of ZTE in the past two or three years is its focus on scale. In recent years, ZTE Terminal has been adopting aggressive measures at low prices for scale during its expansion. At present, the global economic downturn has brought about an incremental bottleneck in the market. Under the circumstances where foreign demand has shrunk, how ZTE should shape its own competitiveness has become a new test.