Vendor Credit Lines Reel in Deals

Some equipment vendors are finding that money, like manure, is best spread around before it'll do any good.

Only days after ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) announced a monster vendor financing deal in India, rival Chinese vendor Huawei Technologies Co. Ltd. has announced a $200 million contract in Nigeria funded entirely by a loan from the China Development Bank (CDB) (see Huawei Wins Nigeria Deal).

Nigeria's Ministry of Communications is using the CDB loan to build a national wireless network based on Huawei's CDMA450 technology. In addition, Huawei has pledged to invest $20 million in an R&D center in the African country.

Huawei secured a $10 billion line of credit over five years from the CDB last December to help with its international expansion (see Give Them Credit: Huawei's Growing ).

ZTE is also active in Nigeria, having won a deal last year with the Ministry for GSM mobile network infrastructure, and has now followed up its original agreement with a $95 million contract extension.

It's unknown whether that deal is financed by a credit line from ZTE, which was granted a $500 million loan facility by the Export-Import Bank of China in February 2004 (see ZTE Gets $500M Export Credit ). But given the nature of Huawei's engagement and ZTE willingness to offer credit, it wouldn't be surprising.

Responding to questions following the news of its $1 billion credit line to Indian operator Atlas Interactive, a ZTE spokeswoman said that although the recent national network deal in Bangladesh was not a vendor finance deal, the vendor has engaged in a number of vendor financing arrangements, but couldn't reveal the names of the carriers involved (see ZTE Gives Indian Carrier Some Credit and ZTE Networks Bangladesh).

Most major telecom vendors, including Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), and Nortel Networks Ltd. (NYSE/Toronto: NT), got their fingers (and bottom lines) burned as a result of vendor financing deals during the bubble years of the late 1990s and are now steering clear of such arrangements.

The irony now is that those same vendors are likely to lose deals to the Chinese vendors as the latter pursue their international ambitions armed with cut-price technology and attractive financial arrangements (see ZTE Doubles Overseas Sales and Huawei's Global Sales Hit $5.58B).

— Ray Le Maistre, International News Editor, Light Reading