Wednesday, December 5, 2012

ZTE announces $20bn strategic co-operation agreement with China Development Bank

Matt Walker, Principal Analyst Network Infrastructure Telecoms, Ovum

AUSTRALIA: ZTE signed a similar, $15 billion deal with the CDB in 2009, the same year Huawei signed a $30 billion deal with the CDB. For both vendors, these were extensions of earlier agreements. So, today’s news is consistent with past practices.

However, this deal comes at a crucial time for the company, and the industry. In 2009, ZTE pursued new financing with clear hopes of growing global share during the financial downturn; it succeeded in this. But three years later, telecom infrastructure markets remain weak, and no vendors are immune from the current pressures.

This $20 billion agreement gives ZTE a much-needed financial boost as it copes with weak sales, declining profits, and layoffs. At a time when several key rivals are struggling, and selling assets to raise cash, fresh support from the CDB may give ZTE a buffer to ride out the current turmoil.

But there is a risk for the company. Accepting this support will make it harder for ZTE to further penetrate western European and North American markets, where policymakers are concerned about unfair competition from Chinese suppliers.

This news will not go unnoticed by ZTE’s opponents, both those in the marketplace and the political sphere. It is worth noting, though, that ZTE has released this news publicly, as part of its financial disclosure requirements tied to listing on the Stock Exchange of Hong Kong. Not all of its competitors have such obligations.”

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