ZTE, Chasing Cisco


Whether the big guns in US like it or not, it is quite clear that Chinese networking and telecom equipment makers are pretty adamant about their plans to dominate the world with low cost gear. The success of UT Starcom shows they can. Huawei will go to any lengths to win, and yes that includes the supposed stealing of code or teaming up with 3Com. And now ZTE Corp is making sure that it is bankrolled enough to take on US-based giants in emerging markets, if not the US itself. The company is reviving its IPO and plans to raise as much as HK$3.1 billion ($399 million) in the IPO next month. The money will be used to grow sales in emerging markets where its sales are up to 13.4 percent of the total in the first-half from 8.5 percent a year earlier. Even though its business is primarily making wireless gear, it has been expanding into the wireline business as well. The company has had quite a bit of success in India, Pakistan, China, Romania, Egypt and now Brazil. If these are the growth markets for US companies, it is only a matter of time before it starts butting heads with US majors. The company had scrapped its IPO plans in April 2003 due to poor market condition. Goldman Sachs is running the book, and replaced JP Morgan as the book runner.



ZTE needs to attack the international markets because domestic (which would be China for them) will decline significantly in 2005 due to slowing in sub growth and equipment spending in PHS thanks to China Unicom, China Telecom and Netcom spending slowdown on CDMA builds. Now its hard to say ZTE can take on other players easily when they get ~50% of revs from PHS. Then gross margins and operating margins declines in China can be expected to continue and most likely accelerate when they will compete in newer markets mainly on price.

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