ZTE has attracted national attention due to sanctions imposed by the U.S. Department of Commerce.

Yesterday coincided with the 100th anniversary of ZTE’s “lifting of the ban.” Looking back on the past, although ZTE announced a series of developments to the outside world, it failed to cause much waves. On the contrary, news of its business layoffs and terminal spin-offs have been repeatedly exposed.

Although ZTE officials avoid talking about it, Sina Technology confirmed from relevant channels that it is already undergoing internal personnel adjustments and business line mergers. The "hardest hit area" of the adjustments is terminal research and development, and some overseas businesses have been suspended.

According to ZTE insiders, ZTE is currently focusing on 5G construction, and other business lines have been tightened accordingly. It is normal for personnel to leave, which is called personnel optimization internally. In addition, affected by the "embargo incident", domestic and foreign businessmen are "poaching", and many people have collectively changed jobs.

More than a month ago, ZTE released its semi-annual report. Not surprisingly, the performance was dismal: revenue fell by 27%, loss of 7.8 billion yuan, a year-on-year plunge of 441%. Although senior management insists that there has been no loss of core R&D talents, employee compensation and salary and welfare expenses have dropped significantly year-on-year, and there must be personnel turnover behind this.

It has been a hundred days since it resumed operations. How will ZTE recover under the "internal and external troubles"?

Internal notice of ZTE Beijing Research Institute (photo by Sina Technology) Internal notice of ZTE Beijing Research Institute (photo by Sina Technology)

Bleak

On the eve of the "embargo incident", ZTE Beijing Research Institute moved into the building located in Sinotrans Building. To this day, the decoration smell has not dissipated.

There is an eye-catching notice outside the elevator on the 8th floor: The company’s trade secrets are related to the company’s competitiveness and are crucial to the company’s development. A small number of employees use trade secrets to work part-time and start businesses, use collective achievements for personal gain, and even act as rival insiders...

ZTE insiders said that after the "embargo incident", ZTE, which had fallen behind for three months, has fallen out of the top four among global equipment manufacturers.

The time goes back to August 30 this year. That night, ZTE released its 2018 semi-annual report. During the reporting period, the company's operating income was 39.434 billion yuan, a year-on-year decrease of 26.9%; the net profit attributable to ordinary shareholders of the listed company was negative 7.824 billion yuan, a year-on-year decrease of 441.24%.

As for the reason for the sharp decline in profits, ZTE explained that it was mainly due to the US$1 billion fine and operating losses and accrued losses caused by the inability to carry out main operating activities.

At this point, ZTE began to desperately catch up and released positive signals to the outside world from time to time.

ZTE CEO Xu Ziyang said that current production has returned to normal, research and development progress has caught up with the goals set at the beginning of the year, 5G testing progress has fully caught up with national testing progress, and after-sales service capabilities have been fully restored.

Xu Ziyang’s statement was verified by employees.

A senior ZTE official told Sina Technology that after the business restarted, the company took only 24 days to match the testing progress of other manufacturers, and basically completed the testing within 2 months. ZTE has returned to the first echelon of 5G, and some results are leading.

"The vast majority of customers still maintain confidence in us and are willing to continue to support the company," the executive said.After the "uot; embargo incident", customers such as Italy and Germany expressed their intention to strengthen cooperation. "We are currently in in-depth discussions with global mainstream suppliers to seek more cooperation opportunities."

However, some analysts deny this statement. Some analysts believe that Because integrity is the primary cooperation criterion for many countries, this incident has caused a lot of irreversible damage, and trust needs to be re-established. "It won't be too fast, it will take time."

It's useless

It is true that ZTE's strategy has been adjusted accordingly, 5 G is the main channel and key business, and investment in other businesses has been tightened.

From the outside, among ZTE’s mainstream projects, the mobile phone business is relatively uncompetitive, and it has struggled to get out of trouble.

ZTE’s new flagship products have poor sales in Tmall flagship stores. ZTE’s new flagship products have poor sales in Tmall flagship stores

Mobile phone sales also reflect the seriousness of the problem. Not long ago, ZTE released its flagship product Axon9. Pro, which is said to be rated as "the best visual effect phone" by foreign media. However, so far, the product has sold only more than 80 units in the official ZTE flagship store on Tmall, and has only more than 40 reviews on JD. It is even difficult to find evaluation information about this product from mainstream media.

From the research data of various companies. It can be seen that ZTE’s mobile phones are no longer among the top five. Although it has a certain share in international markets such as North America, it is not proportional to its annual capital investment. Perhaps because of this, when adjusting its business, ZTE’s mobile phone terminal research and development is inevitable. The R&D centers of the company have had varying degrees of personnel adjustments, and the Nanjing Research Institute, which mainly develops mobile phone terminals, is optimizing its personnel. In addition to direct layoffs, it also includes mergers and reductions. However, due to the complex structure of the company and the large number of employees, it is impossible to count the specific number of employees.

Salaries and wages and benefits have dropped significantly year-on-year (Sina Technology Chart)

Previously, ZTE CEO Xu Ziyang insisted that "the business shutdown has not caused the loss of core R&D talents." However, it is not difficult to see from the semi-annual report that employee salary expenses fell by 18% compared with the same period last year, and "R&D. "Salaries, benefits and bonuses" expenses in "Expenses" also dropped by 27%.

The industry believes that behind the sharp decline in employee salaries and wages and benefits expenses must be affected by the loss of personnel.

Other media reports said that ZTE Intelligent Technology, which was established by ZTE in March this year, Terminal Co., Ltd. will be spun off, and the original goal of independent listing has failed.

Obviously, ZTE Mobile does not have any advantages in the domestic mobile phone market dominated by OV, Xiaomi and Huawei, but it will not die easily.

This person analyzed that ZTE must develop 5G and develop terminal products. It is indispensable as an important part, but it will not be a key business. Advertising in the domestic mass market will be reduced, and the possibility of cooperating with operators or vertical industries to only promote customized machines is not ruled out.

In fact, whether it is contract machines or specific models, ZTE mobile phones have been in the past. The sales volume is very impressive, perhaps this is its destiny.

Emergency

The terminal business is weak, but ZTE still has a place in the global communications industry. After all, the industry has high technological thresholds, and the possibility of a new company breaking through in the short term is extremely low.

In the face of the "embargo".After the "incident", partners in the domestic market extended a helping hand to ZTE. Previously, the three major domestic operators respectively announced a batch of winning bid lists for communication equipment, and ZTE's cumulative orders exceeded 500 million yuan.

In addition to rescuing emergencies, ZTE is also helping itself.

In order to focus on 5G, in the first half of this year, ZTE significantly shrunk the assets of its subsidiaries unrelated to the main channel of 5G and transferred its subsidiaries ZTE acquired 43.6% of its shares and canceled its holding subsidiaries Dalian Zhongwang Real Estate Co., Ltd., Changchun Zhongxing New Energy Automobile Sales Co., Ltd., and Henan Zhongxing Photovoltaic Technology Co., Ltd.

In addition, ZTE still has many industries under its name, including ZTE Development, which involves real estate and hotels; ZTE Microelectronics, which involves semiconductors; and ZTE Network Information, etc.

However, even with a large order of 500 million, ZTE still has a huge cash flow deficit.

The semi-annual report shows that the cash flow from operating activities expanded from negative 4.2 billion in the same period last year to negative 5 billion, and it paid a penalty of US$1 billion and a deposit of US$400 million, in addition to tens of thousands of wages and liquidated damages from partners.

Betting

Thankfully, ZTE did not give up on research and development during the crisis. During the reporting period, it invested 5.06 billion yuan in research and development in 5G wireless, core network, bearer, access, chip and other technical fields.

ZTE, which is betting on 5G, has also achieved some results in China.

In the middle of this month, IMT-2020 (5G) In the third phase of China's 5G technology research and development test organized by the promotion group, ZTE took the lead in completing the 3.5GHz system base station test in SA mode.

"We are the first manufacturer in the industry to complete the 3.5G SA test, including laboratory testing and field testing. In addition, it also took the lead in completing all tests of NSA low-frequency points." Zhu Fusheng, chief engineer of ZTE's wireless business department, told Sina Technology that after completing the third phase of testing, it will cooperate with global operators to verify 5G pre-commercial and commercial networks. "It must also be integrated with the 5G industry and make better killer applications after commercial use to truly operate 5G and lay a solid foundation for successful commercial operations."

However, as a global communications manufacturer, ZTE is facing the impact of giants such as Huawei, Nokia, and Ericsson - the competition for 5G in the international battlefield has been fierce.

Not long ago, the three major US operators have identified partners in the 5G direction and signed multiple orders. Nokia has also received nearly 4 billion in bank loans to increase research and development efforts, and has reached an agreement with operators of US$3.5 billion.

Compared with the international market, China's 5G is still in the testing stage. This has also caused concerns from the outside world. Is China's pace of 5G construction slowing down?

"The national conditions are different." In Zhu Fusheng's view, my country's network infrastructure is complete and is leading the world. ZTE's 5G strategy is "steady advancement": first laboratory testing, field testing, and then transition to operator-scale pre-commercial testing. Using the field, "This is a very robust method and has been verified by history."

As for the next step of ZTE's 5G plan, Zhu Fusheng revealed that after the completion of the third phase of national testing, it has basically proven that the equipment has commercial capabilities, including the functionality and networking capabilities of the equipment itself, but there are still two steps missing: the first is large-scale pre-commercial use and large-scale commercial use, and large-scale testing is required in the next stage with operators; the second is businessBearer applications also need to be tested, such as VR, AR, driverless driving, remote control, etc.

Previously, according to relevant agency predictions, the 5G market will reach 12.3 trillion by 2035. According to Gartner's forecast data, ZTE's global wireless communication equipment market share will reach 22.8% in 2020.

It is not difficult to imagine that before 5G is truly commercialized, domestic and foreign manufacturers will compete for R&D investment. However, countries are still in the exploratory stage as to how much 5G can be monetized and whether it can quickly enter mature markets.

What is certain is that each manufacturer needs long-term and massive investment to cope with the new competitive landscape of 5G. How long can ZTE, which is "half-lived", last on the road to burning money on 5G?