ZTE looks overseas for revenue
ZTE, China's second-largest telecommunications equipment supplier, aims to triple the contribution from its overseas sales to offset an expected substantial decline in core xiaolingtong revenue and delays in third-generation business in its home market.
The Shenzhen-based vendor said the much-talked-about 3G business would not be the company's key earnings driver for at least another two years.
'In the next one to two years, our growth drivers will be overseas sales and handset sales,' ZTE president Yin Yimin said yesterday when announcing details of the company's initial public offering in Hong Kong.
With 3G prospects gloomy, ZTE has decided to step up its overseas expansion by positioning itself as a low-cost vendor to price-sensitive second generation carriers in emerging markets such as India, South Africa, Pakistan and Egypt.
ZTE has budgeted to invest 60 per cent of its IPO or about $1.57 billion in net proceeds to fund its international expansion, hoping to triple the revenue contribution from overseas markets to 40 per cent by 2006. In the first-half, overseas markets contributed 13.4 per cent of ZTE's 10.18 billion yuan total sales revenue.
Having invested more than one billion yuan in 3G technologies over the past seven years, ZTE admitted that its products were only at the commercial trial stage and not ready for large-scale commercial deployment.
While the 3G business has yet to generate meaningful earnings contributions for ZTE, its core xiaolingtong business - a wireless local loop technology that offers limited mobility phone services - is reaching the sunset stage of its technology cycle. Mr Yin admitted the xiaolingtong business, which contributed 45.6 per cent of the company's first-half sales, will drop significantly in the next two years as domestic carriers prepare for their 3G launches.
However, ZTE said it would still benefit if domestic carriers started building 3G networks but cut xiaolingtong spending. Although analysts expect ZTE will have a good chance of winning 3G contracts in the mainland due to Beijing's policy of supporting the telecommunications equipment manufacturing industry, the government's delays in 3G licensing has clouded the company's near- to medium-term growth prospects.
ZTE is selling 141.06 million shares at $17.50 to $22 each through an H-share offering to raise between $2.47 billion yuan and $3.1 billion yuan to help fund its overseas expansion.
The international tranche, which is 90 per cent of the issue, is said to be 13 times covered.
Its retail offering will open for four days of public subscription today. The company will commence trading on December 9.
