ZTE's operator dependency has repeatedly laid off employees in the most difficult time of 31 years

In terms of branding and channel construction, ZTE's mobile phones are all in the same industry. Although they have pursued the goal but they are powerless, the unsatisfactory final results have caused layoffs to be inevitable.

The recent ZTE Corporation (hereinafter referred to as "ZTE", 000063.SZ) can be described as troublesome. Whether it was previously subjected to US Department of Commerce sanctions, high-level exchanges, or recent layoffs, each of them pushed it to the market. The cusp of public opinion. This billion-dollar company is experiencing the toughest moment in its 31-year history.

ZTE’s CEO Zeng Xuezhong had previously published an internal letter titled “Recovering the Heart, 2016 Kings Will Return”, proposing that ZTE’s mobile phone should rekindle its entrepreneurial passion in the next three years and “return to the top three in the domestic market”. However, the overall growth of China's mobile phone industry has become increasingly weak, and the dividend period has passed. How does ZTE achieve this goal?

Some insiders believe that ZTE relies too much on the big tree of operators, and the lack of open channels under the line makes ZTE's mobile phones decline with the decline of operators' channels. So, how does ZTE get rid of operator dependence? With these questions, the "Investor News" reporter contacted the representative of ZTE Securities, the person said that he replied later, but did not fulfill the promise before the manuscript.

3,000 layoffs

ZTE wants to lay off employees! This is a new round of layoffs after massive layoffs in 2012.

At present, ZTE has 60,000 employees worldwide. It is reported that the number of layoffs of ZTE is 3,000, accounting for 5% of the total number of employees, of which 600 are layoffs. "The proportion of layoffs in China's mobile phone business will exceed 20% and will be completed in the first quarter of this year," said a ZTE executive.

After the news came out, the relevant person in charge of ZTE responded that ZTE’s annual turnover rate is about 5%~8%, which is a normal level in the industry. However, this response did not positively answer the layoffs.

"At present, we have not received specific news. ZTE will give the outside world a statement, but as for when to issue a public statement, we can only wait." A person familiar with ZTE told reporters.

Affected by this, on January 9, ZTE A shares fell 3.71%, ZTE H shares fell 3.44%.

In fact, in order to improve the company's operating conditions, ZTE had a major layoff in 2012. As of the end of 2012, due to the huge losses in the first three quarters, ZTE cut 15% of its workforce, and its scale exceeded 10,000. Some projects were forced to be cancelled, some newly recruited freshmen were laid off, and some employees were reduced.

It is understood that, unlike the layoffs in 2012, the layoffs also have many old employees of 7 to 10 years. In this regard, the "Investor News" reporter asked ZTE to verify, but unfortunately, failed to get relevant reply.

In fact, ZTE has not only laid off more staff, but its high-level adjustments have also been quite frequent recently. In April last year, former ZTE President Shi Lirong was no longer the president, but was served by its executive vice president and CTO Zhao Xianming. In October last year, ZTE’s executive director Yin Yimin was appointed as the head of the mobile phone business; last November, ZTE again It was announced that Yu Yifang will no longer serve as the general manager of ZTE Terminal China. The position was temporarily taken over by Bai Bo, vice president of ZTE Corporation.

Pain of performance

"From ZTE's choice of layoffs, it can be judged that its current profitability is not ideal." An industry analyst pointed out that although ZTE's mobile phones have many models, they have relied too much on the low-end market before, and only released the mains last year. The top brand in the high-end market is unlikely to be profitable under the current mobile phone market.

So, what is the performance of ZTE in recent years?

According to Wind data, during the third quarter of 2014-2016, its operating income was 81.5 billion yuan, 100.2 billion yuan and 71.6 billion yuan, up 8%, 23% and 4% year-on-year; net profit was 2.7 billion yuan, 37 100 million yuan and 3.4 billion yuan, an increase of 94%, 22% and 9.7%. It can be seen from this that ZTE’s growth rate has slowed down in recent years.

However, it is interesting to note that its operating profit, during the third quarter of 2014-2016, ZTE's operating profit was 0.6 billion yuan, 300 million yuan and 950 million yuan respectively. ZTE’s operating profit is not proportional to its operating profit. Even in 2012 and 2013, the data was negative, ranging from -500 million yuan to 1,500 million yuan. Why? Perhaps we can see the clues from other data.

Looking at ZTE’s financial reports over the years, the company’s accounts receivable, notes receivable and other receivables have been increasing in recent years. According to Wind data, in the third quarter of 2013~2016, ZTE's accounts receivable were 21.4 billion yuan, 25.1 billion yuan, 25.2 billion yuan and 28.8 billion yuan respectively; bills receivable were 3.5 billion yuan and 2.1 billion yuan respectively. 3.46 billion yuan and 3.5 billion yuan; other receivables were 1.7 billion yuan, 2.23 billion yuan and 4.3 billion yuan respectively.

In addition, ZTE’s inventory is also growing. The data shows that in the third quarter of 2013~2016, its inventories were 12.4 billion yuan, 19.6 billion yuan, 19.7 billion yuan and 29.1 billion yuan respectively.

Previously, ZTE’s CEO Zeng Xuezhong once said that he would rekindle his entrepreneurial passion in the next three years and return to the top three in the domestic market. According to IDC data, ZTE’s global smartphone shipments last year fell by 36.5% compared with 2015. In this regard, Zhao Xianming, chairman of ZTE Corporation, said that the company has suffered the biggest business crisis since its establishment in 31 years.

For the current market where competition is too hot, ZTE wants to sprint the top three will be very difficult, the most important thing is that time is running out.

Carrier dependency

At one time, as a member of “China Cool Alliance (Zhongxing, Huawei, Coolpad and Lenovo)”, ZTE and Huawei have become role models for many brands to learn. But now, Huawei is climbing the mobile phone market, becoming the first in the country and the third in the world, while ZTE has fallen out of the top five in the domestic smartphone market for three consecutive years.

how so? Internet analyst Jiang Bojing said that the quality of ZTE's mobile phone products is insufficient and the user experience is poor. For example, the problem of "the operating system is not updated in time" has become the focus of consumers.

In this regard, Zeng Xuezhong said that when relying on the operator market, ZTE has made hundreds of products at the same time. The management and control mode also adapts to this set of rules, and some low-quality products have become the first factor that hurts the brand.

In terms of branding, Xiaomi has created a benchmark for cost performance, Huawei has created a mid-to-high-end brand image, and LeTV has introduced an ecological concept, and ZTE has failed to bring any new ideas to consumers. In terms of channels, ZTE has spent 90% of its shipments from operators in the past, and open market channels accounted for 10%. In e-commerce and other open channels, ZTE has been slow to develop. Until 2016, ZTE has not fully realized the expectation that the open market channel will account for 40%.

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