Unshackled ZTE needs weeks to get business on track, sources say

China’s largest listed telecoms equipment maker is dealing with a worker shortage as it awaits shipments of key components from US suppliers

PUBLISHED : Tuesday, 17 July, 2018, 2:32pm
UPDATED : Tuesday, 17 July, 2018, 2:56pm

Telecommunications equipment maker ZTE Corp will take several weeks to get its business back on track after gaining its freedom from a game-ending US technology ban, according to people familiar with the matter.

The Shenzhen-based company is dealing with a worker shortage as it awaits shipments of key components from US suppliers like Qualcomm, the people said, asking not to be identified discussing internal matters.

That has hindered ZTE’s ability to get plants up to full speed and it may not hit peak capacity until August, they said.

Donald Trump gets his way as US lifts ZTE ban, allowing company to continue despite senators’ opposition

Washington lifted its ban on ZTE’s purchase of US technology over the weekend, resolving a months-long moratorium that choked off crucial components needed by the Hong Kong-listed company to make telecoms networking gear and smartphones.

Investors have reacted with relief by sending the firm’s shares up more than 20 per cent, while China is said to be pushing domestic telecommunications network operators to consider boosting orders.

While the US ban was in place, the company shut down its major operations. Now that it has been cleared to resume business, ZTE is trying to mobilise workers, but is having trouble convincing the thousands who hail from distant provinces to return to the fold, the people familiar said.

Comprising as much as three-quarters of its factory force, they had long scattered from ZTE’s base to return to their hometowns and cannot be recalled on short notice, the people said.

Compounding the issue, ZTE pays its labourers, often sourced from third-party agencies, less than other major employers in the region.

The Chinese firm recently offered 13 yuan (US$1.95) an hour to prospective assemblers, according to a recruitment notice obtained by Bloomberg. That compares with the 21 yuan proffered by Hon Hai Precision Industry, Apple’s main supplier, according to the same notice. Taiwan-based Hon Hai, the world’s largest electronics contract manufacturer, is widely known by its trade name Foxconn Technology Group.

ZTE chief demands cost cuts but promises not to reduce salaries in short term as full lifting of US ban nears

ZTE declined to comment about problems securing workers and the time it will take to get operations up to speed.

While facilities in Shenzhen and the central Chinese city of Changsha began running on Sunday, these remain well below optimum capacity, the people said.

Some assembly lines had fewer than half the workers they needed as of Monday to function at top speed, though engineers are prepping to open more lines as employees come in. As recruitment continues, the labour shortage is expected to ease, the people said.

ZTE wins one but loses one too – Italy contract bid falls through even as US restrictions start to ease

Meanwhile, ZTE’s sales teams in Europe, Southeast Asia and South America have begun reaching out to existing and potential clients, one of the people said.

The company is concerned about losing business: it reportedly lost a 600 million (US$702 million) contract, covering the supply of wireless equipment to Wind Tre, to Swedish telecoms gear maker Ericsson.

ZTE, which breached trade sanctions to Iran and then lied about it, won its reprieve by paying US$1.4 billion in penalties, changing its entire board and appointing a new chairman. It also agreed to allow US compliance monitors.

ZTE expects to report loss of at least US$1 billion for first half of 2018

The company has estimated losses of US$1.3 billion in the first half alone.

In the longer term, its new management faces the challenge of rebuilding trust with telecoms network operators and corporate customers – particularly abroad.

China’s government has sent notices encouraging the nation’s three telecoms carriers to consider awarding more deals to ZTE, one of the people familiar said.

The country’s Ministry of Industry and Information Technology did not immediately respond to a faxed request for comment.

ZTE’s new management looks forward to new era and sets compliance as priority number one

China Mobile, the world’s largest wireless network operator, granted at least 70 per cent of a broadband construction deal to ZTE on Monday, according to a notice on its website. The much-needed project will generate about 487 million yuan in revenue for ZTE, which competes with larger cross-town rival Huawei Technologies.

Then there is the issue of talent recruitment beyond factory workers, one of the people said, in part because it has proven difficult to convince people of ZTE’s prospects given the damage dealt by the US action. ZTE, however, remains active in recruiting new graduates, one of the people said.