Forbes: entangled in the cold war in the ZTE telecom equipment

On December 4th, ” Forbes ” Asia recently on ZTE chairman Hou Weigui undertook a special interview. Hou Weigui in the interview referred to the company in the United States have misconceptions and difficulties, and said that he would retire after the company on track.

The following to be published in December 10th, ” Forbes ” Asia magazine interview with Hou Weigui full text articles:

In the past 30 years, Hou Weigui was always at the right time in the right place. In 1985 Hou Weigui went to Shenzhen and founded a telecommunications equipment company, this company became the ZTE new communications equipment limited company. ZTE new communications equipment limited company began as a Multi-National Corporation production parts, then began to China’s telephone network manufacturing their own equipment. In the mobile technology began in the emerging market was booming, ZTE new communications equipment limited company began to travel to overseas markets to win orders. ZTE Hongkong in 2004 transactions, and caught up with the global mobile phone industry prosperity.

But for the United States national security equipment, ZTE current is at the wrong time in the wrong place. As a manufacturing telecommunications equipment China Company, ZTE was characterized as dangerous, was hit on the label means the United States more and more concern from Chinese government and espionage. After a year after the hearing, the United States Congress under a committee said in October, ZTE and Huawei ” cannot be confirmed from the foreign state intervention. ” In response, the United States has Chinese officials blamed the trade protectionism and ” cold war thinking. ”

On ZTE chairman Hou Weigui, at this time appear such problem badly. His company is the third quarter of this year a net loss of $310000000, this is also the company since its first public performance since its worst quarter. Since this year, ZTE’s share price is dropped a total of 55%. The United States of America on ZTE and Huawei security investigations, make two company’s lofty ideals and high aspirations. But ZTE smaller, defended the more susceptible. Private Held Company Huawei is also based in Shenzhen, the company doesn’t need to respond to external investors concern.

Market research firm Forrester Research analyst in Beijing Brian Wang ( Bryan Wang ) said, ” Huawei is larger, and is a privately owned company, so investment the company’s flexibility. ” The analysts said, but the two companies have no choice, only to seek growth in overseas markets.

Hou Weigui in April of this year has been in 71 years old birthday, he holds only approximately $1000000 ZTE stocks. But in Hou Weigui founder of the company is at a crossroads, he did not consider retirement problem. Instead he decided to lead the company through difficult times, including the United States Federal Bureau of investigation ( FBI ) of ZTE sales to Iran the United States of America technology investigation.

Hou Weigui is extremely rare in the ZTE headquarters in an interview, stressed the company currently how to focus on profit, in the overseas market to cut spending, as well as in the domestic market to accelerate the introduction of next generation wireless network problems. He said, ” my company will soon recover confidence. ”

China is the world’s largest mobile phone market, operators are on the new radio equipment investment. In October of this year, China Mobile and ZTE communications and other equipment manufacturers signed, beginning in the 13 city to test the 4G network, it also for the network in 2014 put into commercial paved the way. Analysts said the market, operator delayed test and European business losses, leading to resurgence communication in the third quarter.

ZTE announced in the middle of November to $208000000 in cash sale of a subsidiary, it would let the companies performance improve, it will also support ZTE achieve full-year profit. Investment bank Goldman Sachs is expected this year, ZTE revenue will reach $15000000000 net profit of $122000000. Hou Weigui said the United States this year, ZTE from market revenue should be able to reach $1000000000, most of which are from mobile phone sales.

But the bigger question is ZTE current in total $55000000000 global wireless equipment market in what position, the market was Sweden’s Ericsson, Huawei and Al Carter ‘s rule.

Through to the European and North American operators offer a discount, ZTE has been in the market get a foothold, but paid more than China and Africa market profit rate is lower. Hou Weigui took the company to enter the markets of developed countries as a long-term strategy. He admitted, ” we to large multinational operator provides very favorable commercial terms … … This is causing the company huge losses. ”

ZTE consumer devices have occupied the company revenue in 1/3, but the rate of profit of the business is very modest. ZTE is the world’s fourth largest mobile phone manufacturer, the market share of the third quarter to 3.9%. But the rate of profit, as ZTE in overseas sales of most mobile phone are bundled with operator agreement with cheap products and brand awareness, almost does not exist, resulting in the company’s profit lags far behind the Samsung and apple.

ZTE mobile phone current average sales price of $125, the company’s new smart mobile phone current began to tilt in the high-end market, because the market higher profits. Hou Weigui said, ” I must admit, we and Samsung and apple are still a big gap, but we are trying to deal with this problem. ”

Since founded in 1985, ZTE, the company is facing similar challenges, when China is importing telecommunications equipment. 6 years ago, China in Shenzhen this sleepy fishing village created a special economic zone. At that time, nearest neighbor is still British rule of Hongkong is said to be the telephone line has a total of more than the entire continent. It became apparent, want implementation to chase, foreign sales to the Chinese character is the essential choice of Mainland Company, still need to wait.

Hou Weigui was born in Nanning, were assigned to Xi’an is a state-owned aerospace research institute is engaged in the design of integrated circuit prior to the work, he was a teacher. At that time, he often travel to Shenzhen to buy the equipment from Hongkong. In 1985, Hou Weigui and 6 engineers established ZTE semiconductor ( Zhongxing Semiconductor ), which is a state-owned Aerospace Research Institute subsidiary, and has been a Hongkong private investors. In 1997 at the Shenzhen stock exchange before the IPO, the company reorganized as zte.

At first, the ZTE engineers focus on telephone switches and circuit design. In ZTE 36 headquarters of mainland new museum, the proud ranks the design company of the first operator, as well as the young Hou Weigui and his business team photo. In the museum, but also into the column of the company ‘s first car — a deep blue mercedes.

Arrived to go up century 90 time, ZTE begins to enter by foreign manufacturers dominated the domestic market. In 1990 to 1995, China ‘s telephone users soared from 7000000 to 41000000, but local manufacturers have no success. But with foreign manufacturers procurement of ZTE and Huawei cheap equipment, which is installed and running his own equipment foundation.

A consensus view, China Telecom equipment manufacturers has been the development of government funding. In Beijing the industry consultant David Wolf ( David Wolf ) thinks, this is fiction. Wolf emphasizes, in ZTE and Huawei to correct the technology investment at the same time, other state-owned competitors failed to keep abreast of industry transformation and quietly.

Who has China Telecom equipment company, and who is in control of the companies, is to make the United States lawmakers headache. The United States House Intelligence Committee concluded that, because of their national background, in the critical infrastructure China Company can not be trusted. The house intelligence committee chairman Mike Rogers ( Mike Rogers ) said, ” our Huawei and ZTE are very worried, because they are the link between Chinese government and. ”

Who holds the ZTE company? As ZTE’s largest shareholder, ZTE new communications equipment Limited is a company by the Xi’an Institute of microelectronics technology ( Xian Microelectronics ), a state-owned enterprise and Hou Weigui founded an investment fund holdings company. ZTE remaining nearly 70% of the shares are held by the holders of the common stock. Hou Weigui expresses, resurgence communication is one of the shareholders of the Private Held Company. He said, ” I personally think that, regardless of the state holding company majority or minority is not relevant, because we are a listed company, transparent. ”

When asked about the United States House of representatives report and its rejection in the United States of America ZTE telecom equipment bidding problem, Hou Weigui chose his words carefully. He said, ” we know, the United States market is a legal system of the free market, but we don’t understand the report. ”

The United States House Intelligence Committee report, ZTE formed a committee, which means that Chinese Communist Party control over this company. Hou Weigui expresses, Chinese all Private Held Company are required for the formation of the Party committee of Party committee of company management, but did not have any effect. He said, he is not a party member, not party members, but CEO Shi Lirong is a member of party. When asked about ZTE party do, Hou Weigui said, ” I think the United States senators are indeed overestimated the Party committee in the business to play the role of. ”

The United States House of Representatives since claimed, reports and unpublished confidential part, suggesting greater insider. ZTE and Huawei have be indignant expressed dissatisfaction, both said no equipment installed in the back door. Report of investigation to avoid another problem, namely the United States spy agency was not collected any overseas telecommunication network is illegal to collect data on the case, or whether there is the United States manufacturers behind activities.

In sales to the United States for the vast majority of telecommunications equipment, including from China’s accessories, including by Nokia Siemens and Al Carter lucent manufacturing switch and router. Al Carter ‘s and a Chinese State-Owned Company in Shanghai set up a joint venture company. Hou Weigui expresses, ZTE to over 100 countries worldwide sales of equipment, no country because of safety concerns and prevent the resurgence communication products. He said, ” this is the truth. Our equipment will not bring any threat. ”

However, ZTE, danger is that other countries may be in USA as an example. The government of India in 2010 had deliberated on Chinese equipment ban, but then relaxed conditions need to import product safety supervision. However, a India state agency has also advised the government to ban ZTE and Huawei participation in the country’s state-owned fiber network bidding. The Australian government on the national broadband network project also took similar steps, prohibition of Huawei bid.

On the issue of Iran ZTE also suffer, because of the discovery of the company in violation of the United States embargo provides Iran brand equipment. ZTE said this, the company is cooperating with the United States government investigations, and have been exported to the United States original products, the implementation of strict control. Cisco has recently ended ZTE for up to 7 years of partnership, because it is reported that the company’s products were shipped to Iran.

Products exported to Iran question reflects the interaction between China and the American Technology Corp. Hou Weigui said the United States this year, ZTE purchase high-tech parts will be spending about $3000000000. The company in the United States has hired more than 300 employees, most of them americans. However, this does not eliminate the United States lawmakers hostility towards china.

Hou Weigui expresses, resurgence communication will continue to western market sales of telecommunications equipment, and trying to build their own brands. In accepting the ” Forbes ” Asian journalists before the interview, he uses a time in the morning with a Spanish broadband operators officials held talks. Hou Weigui said, he often due to business reasons to travel, he wasn’t sure he had visited many countries.

Although the above interview shows no sign of this came to Shenzhen in 1985, entrepreneurs have ready to retire, but Hou Weigui said, ” one day, everyone must take some reasons for retirement. When the company a good business, operating normally, I would choose to retire. “