ZTE shares face pressure after layoff reports

Telecommunications network equipment provider may eliminate 3,000 mainland jobs in first quarter of 2017

PUBLISHED : Sunday, 08 January, 2017, 7:17pm
UPDATED : Sunday, 08 January, 2017, 10:02pm

ZTE Corp, China’s largest listed telecommunications network equipment manufacturer, could see its shares hammered on Monday amid reports that the company plans to eliminate about 3,000 jobs in the first quarter of this year.

Shenzhen-based ZTE aims to lay off about 5 per cent of its 60,000 global workforce, according to a Reuters report on Friday that cited company sources.

It pointed out that 600 jobs at ZTE’s mobile device business group, most of which are located on the mainland, will be terminated.

“We are aware of the report, and have no comment at this time,” ZTE spokesman David Dai Shu told the South China Morning Post on Sunday.

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A local manager in one of the company’s overseas branches said a 10 per cent quota was given to shed staff in his department by the end of January, according to Reuters.

“I was also given names that must go because they had tried to apply for jobs at (rival) Huawei and are therefore branded as ‘unstable factors’,” said the manager, who asked not to be identified.

The reported dismissals could mark another blow to Hong Kong-listed ZTE, after Washington slapped export restrictions on the firm in March 2016 for violating long-standing US trade sanctions on Iran.

The company’s share price has declined about 15 per cent in the past 12 months because of the uncertainty caused by the US restrictions, as well as stiff competition in the global market for telecommunications network equipment and smartphones.

The US action stemmed from the Commerce Department’s probe of a €98.8 million (HK$806.6 million) contract between ZTE and the state-controlled Telecommunications Company of Iran for the supply of a powerful surveillance system that included key US-made components.

Under the export restriction, suppliers of goods subject to the US export curbs are required to apply for a license to ship those items to ZTE. A “license review policy of presumption of denial shall apply” in this situation, ZTE said.

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In November, the Bureau of Industry and Security of the US Department of Commerce granted ZTE a reprieve for the fourth time from those export restrictions. It extended ZTE’s temporary general license to February 27, 2017.

ZTE’s Dai said the company is currently the world’s fourth-largest network equipment supplier to telecommunications services providers and enterprises.

According to Counterpoint Research, ZTE was the world’s seventh-largest smartphone supplier in the third quarter with a 4.1 per cent market share. It was the fourth top-selling brand in both North America and Europe.

By comparison, mainland rival Huawei Technologies remains the world’s biggest telecommunications network equipment supplier. It leads both Ericsson and Nokia.

Huawei was also the world’s third-largest smartphone supplier after Samsung Electronics and Apple in the third quarter, according to Counterpoint.

“Cuts in [ZTE’s] handset business in China will be beyond 20 per cent,” said a senior executive who has been briefed on the lay-offs, which are scheduled to be completed within the first quarter.

ZTE chairman Zhao Xianming said in his New Year speech to staff that the company, which has annual sales of more than US$15 billion, had “encountered its biggest crisis in its 31 year history”, according to the Reuters report, which cited the mainland company’s official WeChat account.

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Zhao vowed to enhance internal auditing and said the company was streamlining its management structure, the report said.

“In 2017 ... businesses that don’t fit our strategic direction or with low output performance will be shut, suspended, merged or reconfigured, improving the company’s core competitiveness,” he said.

Reuters said internal memos showed that ZTE has also created four new senior vice-president positions in charge of investment, internal audit, compliance, and tax, respectively.