Yesterday (October 15), ZTE released the first three quarters performance forecast: the net profit is expected to fall by 254.42% ~ 263.78% year-on-year. Affected by this news, ZTE's A and H shares plunged on the day.
By sorting out ZTE ’s financial data, the reporter found that in 2009, 2010, 2011 and the first half of 2012, the company ’s net cash flow from operating activities was 3.729 billion yuan, 942 million yuan, 1.812 billion yuan and- 3.64 billion yuan, showing a clear downward trend. At the same time, the asset-liability ratio is on the rise.
Changing the price at a low price has always been a means adopted by some companies in the expansion process. In recent years, ZTE has also embarked on this path. A veteran of the communications industry, who declined to be named, said that in a sluggish market environment, ZTE's move was a wrong strategy and laid a hidden danger for huge losses. At the same time, the company's management of the project process is not strict enough, and many projects do not make a profit.
Pre-loss performance, stock prices plummeted
Regarding the poor performance forecast in the first three quarters, ZTE explained that the company's operating revenue from July to September decreased compared with the same period last year, mainly due to the delay in the progress of some international projects and the comprehensive impact of the domestic operator's centralized procurement model on the company's revenue recognition As a result, the overall gross profit margin in the same period decreased compared with the same period of last year, which was mainly due to the fact that many low gross profit contracts in Europe, Asia and China confirmed the performance during the reporting period. The ZTE announcement also stated that the management apologized for the current operating results and decided to collectively reduce the salary.
Affected by this news, yesterday, ZTE's A shares fell to a limit, the closing price of 9.45 yuan hit a new low of nearly 4 years, H shares fell as much as 15.79%.
"The huge loss of performance has exceeded the limits of many professional organizations, otherwise it will not panic and ship at the limit." A brokerage analyst who has followed ZTE for a long time analyzed.
Fu Liang, an analyst in the telecommunications industry, told reporters that the global economy is in a slump, and the communications equipment industry is having a hard time. In addition, large and small enterprises are robbing the smart terminal market, which is quite unfavorable for ZTE.
Another industry insider believes that ZTE ’s overseas expansion has encountered problems in the evaluation of the project. Many projects only found losses during the implementation process, which is also one of the reasons. In addition, "it is also related to the company's handling of a batch of contracts that are difficult to recover during the quarter."
A report issued by Bank of America Merrill Lynch also believes that the main reason for the decline in ZTE ’s profits is the delay in capital expenditures of operators, and ZTE ’s more conservative revenue recognition policy (which is a one-time impact), plus the delay of certain international projects. .
Analysis: Has the low-cost strategy gone?
But at a deeper level, ZTE's current predicament may be related to its market strategy of low-cost competition in recent years.
Taking the Indian market as an example, before the state-owned operator BSNL of India announced the national 2G network expansion plan, ZTE won the overwhelming price advantage, and its bid was 840 million U.S. dollars, which was less than three of the highest bids of Nokia ’s US $ 2.5 billion. One percent is also far below the 1.3 billion US dollars reported by Huawei.
According to the Economic Times of India, it is currently uncertain whether ZTE can continue to provide GSM equipment at the promised low price, and the overall expansion plan of BSNL may fail.
Cui Liangjun, CEO of ZTE India, said, "We are still conducting technical demonstrations and seeking more time from the BSNL side to decide whether to accept equipment orders in the eastern region, because ZTE's director of public accounts is currently in China headquarters and senior management. The management discusses whether they can fulfill the contract. "
A veteran of the communications industry, who declined to be named, told reporters that ZTE has implemented a more aggressive market strategy in recent years, and also robbed many contracts at a low price last year. This may be a strategic mistake, because in a sluggish market environment, Enterprises should steadily advance and accumulate energy. At the same time, in order to achieve rapid expansion overseas, ZTE has also undertaken many equipment replacement contracts, and these projects have low profit margins. In addition, ZTE's internal management also has problems. Due to the lack of strict management of the project process, the budget for many project expenditures is too simple. After implementation, it was found that not only did not make money, but also lost money.
Perhaps discovering these problems, the management of ZTE Corporation recently released its intention to make a change. It will abolish the representative office that has suffered a long-term loss and cannot make a loss in the short term. At the same time, it will control the number of employees and make structural adjustments.
Subsequent financing may be impacted
The reporter also found that from the perspective of key financial data such as ZTE ’s operating cash flow and asset-liability ratio, its funding pressure is increasing.
Financial report data shows that in 2009, 2010, 2011 and the first half of 2012, the net cash flow generated by ZTE ’s operating activities declined year by year, respectively, 3.729 billion yuan, 942 million yuan, -1.812 billion yuan and -3.64 billion yuan That is to say, the net cash flow generated by operating activities in the first half of this year decreased by nearly 200% compared with 2009.
At the same time, ZTE's asset-liability ratio is also rising. The asset-liability ratios in 2009, 2010, 2011 and the first half of 2012 were 73.74%, 70.34%, 75.05% and 75.07% respectively.
The above-mentioned industry insiders pointed out, "Before, ZTE's stock price fell sharply due to the poor performance of the interim report. At that time, the company said that the performance in the second half of the year will be improved; Will undoubtedly lose the trust of investors. Why ca n’t we talk about it earlier? "
"At present, the capital market reacts strongly to the decline in ZTE's performance. In the future, the company may encounter financing difficulties, which will further increase the pressure on the capital chain." The industry source said.
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