Clash With Washington Drove ZTE $1 Billion Into the Red Last Year

Embattled ZTE Corp. shuttered nine of its subsidiaries last year as the Chinese telecom-equipment maker reported a loss of just over $1 billion after being thrown into crisis by a high-profile clash with Washington.

ZTE reported Wednesday a loss of 6.98 billion yuan ($1.04 billion) for 2018, compared with a profit of 4.6 billion yuan for the previous year

The loss was in part due to a $1.4 billion fine slapped on ZTE by the U.S. authorities for selling U.S.-made products to Iran in violation of sanctions. The penalty ended a ban on ZTE purchasing components from U.S. suppliers that was in force between last April and July. That ban led to a partial suspension of the company’s operations.

Nine of its subsidiaries have shut down, including ZTE Photovoltaics Technology Co. Ltd., based in Central China’s Henan province; ZTE Group Finance Holdings (Hangzhou) Ltd., based in East China’s Zhejiang province; and Shenyang (ZTE) Big Data Research Co. Ltd., based in Northeastern China’s Liaoning province. They were shuttered at the end of last year.

Also, ZTE sold down its stake in two other subsidies — Shenzhen ZTE Jinyun Technology Co. Ltd. and ZTEsoft Technology Co. Ltd. — and relinquished control after introducing new investors.

On the other hand, the company has set up over a dozen new subsidiaries both at home and overseas, including in Laos, Pakistan and Nigeria. The company didn’t immediately respond to Caixin’s request for comment on the expansion.

As of December, ZTE had 68,000 employees, compared with 74,533 in the same period a year ago. Most of the job losses were in the firm’s research and marketing departments, according to its financial report.

The company projected a net profit of between 800 million to 1.2 billion yuan in the first quarter of 2019.

Chairman Li Zixue said earlier this month that following a difficult second half of 2018, ZTE is in a “slowing-down mode.” The company’s strategy hasn’t changed and will focus on “recovery, development and excelling,” the chairman said.

For the first half of this year, ZTE plans to establish a total credit line more than $64 billion from domestic and international financial institutions, including a $4.6 billion loan package from a consortium of six banks, which includes the Development Bank of Singapore and France’s Societe Generale.

The borrowing plan, approved by the company’s board on Wednesday, also includes a 122.9-billion-yuan loan package from a consortium of 17 Chinese banks and a 200 million euro ($225 million) loan from Italy’s UniCredit Bank. The company’s statement on the package didn’t say how the money will be spent.

Contact reporter Mo Yelin (yelinmo@caixin.com)