Text / Aachen
A heavy moment.
ZTE released its semi-annual financial report for 2018, with a net loss of 7.824 billion yuan, a year-on-year loss.
This is the first financial report to reflect the shadow of the US export ban. In the first half of 2018, ZTE's operating income was RMB 39.434 billion, a decrease of 26.99% year-on-year. The financial report stated that the main business network and consumer business revenue decreased compared with the same period of the previous year.
In fact, the reduction in revenue here is caused by the suspension of the company's business by the US 416 embargo. Another factor in the net profit plunging is the payment of a $1 billion fine to the US.
At the same time, “deeply sound” found that after the US issued a ban on ZTE, the company’s asset impairment losses and credit impairment losses were significantly increased: the company’s assets were not able to achieve sales due to the large amount of inventory during the period of the sanctions, resulting in the company’s asset impairment losses. Compared with the same period of last year, it increased by 200 million yuan. At the same time, due to the significant decline in the company's overall credit, the company's financial instruments suffered credit impairment, and the company made a credit impairment loss of about 1.66 billion yuan.
Figure: ZTE's 2018 semi-annual report main data
In stark contrast to this is ZTE’s quarterly report released on April 27.
The first quarter financial report showed that ZTE maintained a strong growth momentum, achieving revenue of 28.88 billion yuan, up 12.18% year-on-year; net profit was 1.687 billion yuan, up 39.01% year-on-year. Revenue and net profit both set a new record in history. Reuters commented on ZTE's “Best in History”.
The contrast is too obvious.
Although the US side has suspended the implementation of the lock-up and reached a settlement agreement in July, the previous turmoil was enough to bring ZTE's catastrophic blow. “During the disaster reconstruction”, the recovery of market confidence will take time.
Just this week, Li Zixue, the new chairman of ZTE, said at the shareholders meeting that ZTE’s production mission has returned to normal: “Today, the main business has been fully restored, and the production tasks in August have returned to normal. In the fast recovery, 5G network testing has kept pace. ”
At the same time, ZTE just released ZTE's first “Liu Haiping” flagship AXON 9 Pro at the IFA International Consumer Electronics Show in Berlin.
It is said that 89 days is the dark moment of ZTE, and the cold data of the financial report also reveals the strength of this record.
Then, how will ZTE, after the storm, start the road of reconstruction? How can you recover after a big injury? What are the side effects of the settlement agreement? Will 5G be a new turning point for ZTE? Can ZTE eat a long one? The financial report predicts that the third quarter or profit will be 24.19 million yuan to 10.24 billion yuan. Does this mean that ZTE is returning blood?
Summer blown by the wind
Pull the time back to April.
The US Department of Commerce announced on April 16 that it will ban US companies from selling parts, goods, software and technology to ZTE in the next seven years. The reason for the ban is that ZTE violated the US sanctions on restricting the sale of US technology to Iran.
On the morning of April 17, ZTE A and H shares were suspended simultaneously. Subsequently, CITIC Prudential Fund and Changxin Fund took the lead in significantly reducing the valuation of ZTE. Just two days later, more than 30 fund companies downgraded ZTE’s valuation. In fact, ZTE has always been the focus of fund holdings. As of the end of last year, a total of 653 public funds held ZTE, holding a total of 326.59 million shares.
For a time, the fund was mourning.
On April 20th, the mourning got a real hammer. ZTE held a press conference at its headquarters in Shenzhen. Yin Yimin, the former chairman of ZTE, said in a speech that the US sanctions immediately put the company into a state of shock.
Image from Xinhua Viewpoint
In the US stock market, ZTE’s supplier concept stocks also fell sharply.
The discussion on the ZTE incident in public opinion is even more intense. From the weakness of ZTE's chip to the domestic chip crisis, even the media said that this incident has risen to the point of hatred of the country.
This magical thing lasted for 89 days.
Until the evening of June 12, ZTE announced that the US Department of Commerce had passed the "Alternative Order on ZTE" approval on June 8 (US time). According to the agreement, ZTE will pay a total of US$1.4 billion in civil penalties. The company will replace all the board members of the company and ZTE Kangxun, and will terminate the contract with the company and the current senior vice president of ZTE Kangxun and all the above senior leaders. The company's A shares will resume trading on the morning of June 13th.
After the resumption of trading, ZTE's share price has been falling. It has fallen for 7 consecutive words. The stock price has reached a minimum of 11.85 yuan per share, which is more than 60% lower than the stock price before the suspension.
ZTE A-share trend
ZTE Hong Kong stock market trend
On June 29, ZTE held the long-delayed 2017 Annual General Meeting of Shareholders at its headquarters. Within one day, ZTE elected a new 8-member board of directors through a general meeting of shareholders. The board of directors quickly elected Li Zixue as chairman. A total of 14 former directors, including Yin Yimin, the chairman of ZTE, and Zhao Xianming, the president, agreed to resign as directors immediately and held various professional committees under the board of directors.
On July 2, the US Department of Commerce issued an announcement to temporarily and partially lift the export ban on ZTE Corporation and lift the export ban on ZTE under limited conditions.
This has caused ZTE’s share price to continue to rise.
On the evening of July 5, ZTE announced that Xu Ziyang was appointed as the president of the company. Wang Xiyu, Gu Junying and Li Ying were appointed as executive vice presidents of the company. Li Ying was appointed as the company's chief financial officer. The former incumbent resigned, and ZTE made the agreement according to the agreement. The personnel adjustments are all completed.
On July 14, after completing the rectification according to the agreement, ZTE began to fully resume its global business. The LED screen on the first floor lobby of the R&D building of ZTE Headquarters is on the screen, “Unblocked! It hurts! Go on the journey again! & rdquo; red slogan.
Is ZTE really painful?
At that time, mainstream public opinion including the "People's Daily" believed that this round of storms may stimulate the self-improvement mentality of the Chinese industry, and increase the investment in the chip industry regardless of the cost, and become a challenge.
“It is foreseeable that from now on, China will increase its investment in the chip industry regardless of cost, and the entire industry will usher in historic opportunities. ”
But "deep-echo" (deep-echo) found thatZTE's R&D investment in January-June 2018 did not increase and decreased, down 24.2% year-on-year.This makes people wonder that since they have already suffered a big loss in core technology, why not invest in research and development?
Don't be busy, keep looking back.
Although R&D investment declined, the capitalization of R&D investment increased significantly by 45.93% to 970 million yuan.According to the company's explanation, this is due to the company's continuous research and development investment in 5G wireless, core network, bearer, access, chip and other technical fields, and it has been widely used in the market.
According to accounting standards, research and development projects within an enterprise are divided into two phases: research and development. Expenditures in the research phase shall be included in profit or loss (administrative expenses) after the current period is collected; the expenditures in the development phase may be recognized as intangible assets, that is, capitalized, when certain conditions are met.
Some brokers told “deeply” that the standard of capitalization of R&D expenditure is strict, but it is often used as a performance adjustment tool by some companies. If the capitalized R&D expenditure on the accounting books is high, the company is likely to be whitewashing the statements.
However, it is not possible to judge ZTE’s technical determination from the cost of research and development alone.
Fortunately, ZTE’s core R&D talents have not been lost, and the number of employees leaving the company has remained at the same level as last year. After the ban was lifted, the company quickly invested in infield, field testing and national testing of 5G networks. Up to now, ZTE's 5G test has all gone to the national test requirements.
Another question is how much damage has ZTE’s business suffered? Is it really recovering now?
At present, ZTE has three main businesses:
First, the carrier network. Focus on the evolution of carrier networks, providing innovative technologies and product solutions such as wireless access, wired access, bearer networks, core networks, telecom software systems and services.
Second, political business. Focus on the needs of government and enterprise customers, based on the "communication network, Internet of Things, big data, cloud computing" and other products, to provide various information solutions for the government and enterprises.
Third, consumer business. Focusing on the intelligent experience of consumers, taking into account the needs of the industry, developing, producing and selling smart phones, mobile data terminals, home information terminals, integrated innovative terminals and other related software applications and value-added services.
In contrast, ZTE’s political business has not received any impact, and its income has not fallen. In fact, ZTE has been working in the government and enterprise sector for more than ten years. This business is mainly ICT (Information Communication Technology) solution.
In 1997, ZTE established a special network department to be responsible for the industry communication market. At the beginning of 2012, the global strategy of government and enterprises was clarified, and the investment in government affairs was increased. The government business became the company's three strategic businesses and the company's important business growth engine.
We can see some typical cases of ZTE's corporate affairs —— Beijing Metro Line 7 communication system, Shenzhen Metro Line 3, Jiaxian County Hospital Information Construction, Biyang County Secondary Vocational Technical School Campus Network, Nanjing Smart city management system and so on.
Obviously, the hands of the United States are not enough for these places. The platform-level construction of the software itself does not involve chips, and ZTE’s accumulation in government business is relatively deep, and the order acquisition ability is very strong.
Carrier network services and consumer business are not so lucky.
Both of these services provide communication equipment such as main equipment to domestic and overseas operators.
Some industry insiders have pointed out that there are many components involved in communication equipment enterprises. One base station has one chip that is embargoed, and the entire base station cannot be delivered. At present, the circuit board on the base station is self-produced except for several digital baseband chips. On the communication link, the RF, PLL, ADC/DAC and even the chip that measures the power supply voltage at the periphery can not find the domestic supplier.
Therefore, because ZTE's baseband chips, RF chips, storage, and most of the optical components are from the United States, the impact will be significant in the short term. The delivery of existing orders and the new acquisition of orders will be greatly affected. It is expected that the delivery and payment will be affected. Whether the penalty on the customer side will be delayed due to the delayed delivery will be judged based on the further information disclosed.
Xu Ziyang, CEO of ZTE, said that the international business was affected by the refusal to form an order loss, but the company is still in the first camp of the communications industry. The current order is in good condition and is basically the same as last July and August.
In Xu Ziyang's planning, ZTE plans to return to the normal growth track in 2019 based on the business recovery in 2018. It will continue to rank in the first camp of 5G. In 2020, it will grasp 5G large-scale commercial opportunities and achieve rapid development. .
Can 5G make ZTE go against the wind?
5G, a word with a very high frequency in the financial report is also a key point for everyone to compete for.
“5G is far more than a high-speed mobile Internet, it is touted as a technology that can support next-generation infrastructure, from billions of Internet devices that are expected to be launched in the next few years to smart cities and driverless cars ……5G It may be that President Trump promised “to make the United States great again”;
CNBC released a report that "a major factor behind the Sino-US trade war is to win $12 trillion in technology & mdash; — 5G" is to write the power of 5G.
“ZTE will pour the most resources into the 5G investment. “The CEO Xu Ziyang said that the company clearly saw that there will be a large growth trend in the domestic and international 5G markets in 2019-2020. Therefore, ZTE is gathering all resources and focusing on 5G applications, 5G core networks, and 5G transmission bearers.
On the IFA2018, ZTE launched the latest “5G Device Solution” and said it will officially launch 5G mobile devices in the second half of 2019.
Specifically, ZTE's 5G solution has four core technologies:
First, the antenna process solution, which is the core technology of the 5G solution.
Second, the hardware architecture solution required by 5G.
Third, ZTE's intelligent algorithm, which will optimize the power consumption of mobile phones in various scenarios.
Fourth, ZTE also improved heat dissipation through different heat dissipation materials and temperature control optimization.
According to the "China 5G Industry Development Prospects and Industry Chain Investment Opportunity Analysis Report", it is estimated that the direct output of about 484 billion yuan and the indirect output of 1.2 trillion yuan will be driven by the official commercialization of 5G in 2020; According to the output structure, in the early stage of 5G commercialization, the equipment manufacturer's revenue brought by network equipment investment will become the main source of 5G direct economic output. It is estimated that in 2020, the total revenue of network equipment and terminal equipment will be about 450 billion yuan, accounting for the direct economy. 94% of total output.
Wu Youwen and Yi Jingming, analysts of Zhongtai Securities, believe that ZTE’s high investment in the 5G field has accumulated remarkable results in the past few years, and the engineer dividend will still be its long-term competitive advantage. The overall strength of network equipment has been ranked first in the echelon. The huge market volume will also support its rapid development in the 5G commercial phase. In fact, the company did not participate too much in the overseas competition of 3G, which means that the overseas market is basically an increase in its overall share.
But 5G is still a relatively long-term layout.
Returning to the current chip issue, specifically to ZTE Microelectronics, a subsidiary of ZTE's semiconductor business strategy, Xu Ziyang said that it will increase ZTE's investment in chip research and development, and focus on the R&D business of ZTE's main device chip. Such as baseband chips, 5G transmission switching chips, IP chips, etc., these chips are a key part of the core competitiveness.
Xu Ziyang also talked about the development of ZTE's chip business. “The upstream and downstream of the communication industry's industry chain is & rsquo; you have me and I have you & rsquo; in this context, we will increase investment in the future two things, one is to increase ZTE internal Key devices such as chip research and development, and at the same time increase cooperation with third-party chip manufacturers in the industry, we believe that only two ways to go together is the best way to control system risks and maintain healthy development. ”
In the short term, the business stagnation caused by the embargo has a negative impact on downstream customer confidence, and it is still urgent to rebuild the confidence of key customers of domestic and overseas operators.