ZTE woes may linger in 2013

Shenzhen-based ZTE Corp, the country's second biggest telecommunications equipment maker, which has been mired in layoff rumors since an executive revealed his termination on his Weibo, may continue to feel the pinch in 2013 amid sustained global economic woes, an industry analyst told the Global Times Sunday.

"ZTE has seen an obvious decline in business performance in 2012, mainly owing to the global economy weakening during the year, which impacted demand for telecommunications equipment, and the company's concurrent revamping efforts that necessitate big capital injections," Tian Ying, Beijing-based principal telecom analyst at market research firm Gartner Inc, told the Global Times Sunday.

Heavy research and development investment may also add to ZTE's capital expenditure pressure, according to Tian, who remains skeptical about the company's earnings outlook in 2013, though she believes "ZTE may see slight upward revisions this year as the market is generally more bullish on recovery prospects in the Asia-Pacific economies including China, the company's major markets."

Shares of ZTE, floated on the Shenzhen and Hong Kong stock exchanges, have been declining since Shen Li, a vice president of marketing, said on his Weibo February 17 that he received a notice of termination, which quickly sparked widespread speculation that massive layoffs might be next.

In response, ZTE released an official Sina Weibo statement denying layoff rumors on February 19, saying Shen's termination is actually a routine position change among mid-level executives, but the company's stock performance continues to suffer.

On Friday, ZTE shares fell by 3.88 percent in Shenzhen to close at 10.15 yuan ($1.63), and 0.88 percent in Hong Kong to close at HK$13.58 ($1.75).

Calls to a company spokesperson went unanswered Sunday.

ZTE has yet to announce its final earnings results for 2012, but it predicted up to 2.9 billion yuan in net loss in a preliminary statement released on January 20.

The projected loss comes from non-renewed contracts and project delays, ZTE said in the statement. It expected a return to profitability in the first quarter of 2013, partly thanks to its sale of an 81 percent stake in its surveillance solutions supplier subsidiary Shenzhen ZTE NetView Technology Co, which is projected to bring in an investment income ranging between 820 million and 880 million yuan.

But the company's profitability prediction has been insufficient to beef up market sentiment.

Fitch ratings, a major US credit rating agency, also cut ZTE's Long-Term Foreign- and Local-Currency Issuer Default Ratings from 'BB-' to 'B+' on February 6.

"The turnaround in ZTE's operating performance, and notably a return to sustainable positive generation of cash flow from operations, could take several quarters," the rating agency said in a statement, estimating "a meaningful recovery in ZTE's credit metrics is likely in 2014, at the earliest."