As China’s ZTE struggles to assess ‘potential impact’ of Washington’s export restrictions, board meeting delayed, shares still in limbo

PUBLISHED : Thursday, 17 March, 2016, 4:42pm
UPDATED : Thursday, 17 March, 2016, 4:52pm

Trading of ZTE’s shares in Hong Kong remain in limbo, after China’s largest-listed telecommunications equipment manufacturer said on Thursday that its scheduled board meeting next week has been postponed.

That followed Shenzhen-based ZTE’s announcement last week that it was uncertain whether a solution can soon be reached with the United States government, which slapped the company with export restrictions over its alleged violation of longstanding trade sanctions on Iran.

In a regulatory filing, ZTE chairman Hou Weigui said the company was unable to finalise its earning results for last year “pending a thorough assessment of the potential impact of the restriction measures on the business”.

The board meeting to consider and approve the company’s earnings results for last year was postponed to a later date, which the board will determine, according to Hou.

In January, ZTE said its preliminary estimates showed that the company achieved a 43.48 per cent increase in net profit last year to 3.78 billion yuan (US$582.44 million), up from 2.63 billion yuan in 2014, on the back of strong 4G network equipment orders and international 4G smartphone sales.

It projected total revenue to have grown 23.76 per cent to 110.82 billion last year from 81.47 billion yuan in 2014.

“Our channel check indicates that China Unicom will expand 4G nationwide coverage and

increase investment in the number of base stations this year,” Jefferies equity analyst Cynthia Meng said in a report.

“This may benefit ZTE as a leading supplier for Unicom.

ZTE’s prospects this year, however, have been clouded by the export restrictions imposed against it by the US.

The Bureau of Industry and Security under the US Department of Commerce imposed the export restrictions on ZTE last week, making it difficult for suppliers to ship any American-made equipment and parts to the company.

Suppliers of goods subject to the US export curbs are required to apply for a licence to ship those items to ZTE.

A “licence review policy of presumption of denial shall apply” in this situation, ZTE said.

It added that US export restrictions also applied to affiliates ZTE Kangxun Telecommunications, Beijing 8-Star International and Iran-based ZTE Parsian.

Nomura research analyst Huang Leping expected the US export curbs to have no immediate impact on production at ZTE.

Huang said ZTE completed its purchase of US components for its 2016 production schedule at the end of last year, which should provide the company and the Chinese government with some lead time to negotiate a resolution to the US export restrictions.

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ZTE’s major suppliers included Qualcomm for chips used in smartphones, as well as Xilinx and Intel subsidiary Altera for chips used in base stations.

The US export curbs on ZTE stemmed from the Commerce Department’s investigation of a 98.8 million (HK$845.5 million) contract between the company and the government-controlled Telecommunications Co of Iran for the supply of a powerful surveillance system.

That deal, which was signed in December 2010, delivered a product that would make TCI “capable of tracking landline, mobile and internet communications” across Iran, Reuters reported in 2012.

A senior Commerce Department official said the agency and ZTE are in ongoing discussions, Reuters reported this week.

“These discussions have been constructive, and we will continue to seek a resolution,” the official said.