ZTE: Set for Overseas Explosion

Chinese vendor ZTE Corp. (Shenzhen: 000063), which is just about to join the Hong Kong stock exchange, predicts that 40 percent of its revenues will come from international sales by 2006 (see ZTE Unveils Hong Kong IPO).

That's a massive leap from where the company is now. In the first half of 2004, 13.4 percent of its revenues came from outside China, according to figures just released by the vendor.

Revenues in the first half of 2004 totaled 10.2 billion renminbi (US$1.23 billion), up 45 percent from a year earlier, while net profit doubled to RMB724 million ($87.5 million).

ZTE plans to fund its international expansion using 60 percent of the proceeds from its Hong Kong IPO, which could raise as much as $450 million. ZTE's shares will debut in Hong Kong on December 9 at a price to be announced this Friday, December 3.

ZTE isn't the only large Chinese vendor with high hopes for overseas sales. Its main domestic rival, Huawei Technologies Co. Ltd., reckons more than half its annual revenues could come from international sales next year (see Huawei Set for $5B in 2004).

All of which scares the pants off other global vendors that are worried about losing business, and having their prices and margins squeezed, by the Chinese vendors, which have much lower operating and R&D costs.

Just yesterday, Nortel Networks Ltd. (NYSE/Toronto: NT) CEO Bill Owens told diners at Scotia Capital's Institutional Lunch in Toronto that consolidation in the vendor community was likely, as the growth of Huawei and ZTE put increasing pressure on other manufacturers' gross margins.

— Ray Le Maistre, International News Editor, Light Reading

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