Ideally, chasing a race leader should make one focus on running harder. The same applies to ZTE, China’s number two wireless telecom network company behind world-beater Huawei. A maturing mobile market at home plus withering competition in smartphone handsets have caused enough problems. A tiff with the US over sales of equipment to Iran in March last year appears to have made matters worse. However, the shares, down almost a fifth in a year, already price in a lot of woe.
Recent reports that ZTE will soon fire 3,000 workers hint that all is still not well. On Monday, the Hong Kong and Shenzhen-listed shares fell more than 3 per cent. The company would not confirm the reductions. But cost-cutting must come in a handset business generating almost a third of group revenues. Though never a global powerhouse, ZTE has seen once-solid smartphone growth dissipate as domestic rivals Oppo and Vivo, not to mention leader Huawei, eroded its share. In 2015 ZTE made over a tenth of Chinese smartphones; this year that will fall to less than 7 per cent.
Superficially, things do not look much better in ZTE’s mobile networks business, which accounts for four-fifths of operating profits. In the first half to June 2016, its overseas revenues fell more than 7 per cent year on year. That followed a period of double-digit growth in 2015. Potential US sanctions on ZTE for selling kit to Iran might explain part of the slowdown.