Unshackled ZTE Needs Weeks to Get Business on Track, Sources Say

(Bloomberg) -- ZTE Corp. will take several weeks to get its business back on track after gaining its freedom from a game-ending U.S. technology ban, people familiar with the matter said.

The Chinese telecommunications equipment maker is dealing with a worker shortage as it awaits shipments of key components from U.S. suppliers like Qualcomm Inc., the people said, asking not to be identified discussing internal matters. That’s hindering its ability to get plants up to full speed and ZTE may not hit peak capacity until August, the people said.

Washington lifted its moratorium on ZTE’s purchases of U.S. technology on the weekend, resolving a months-long moratorium that choked off crucial components the Shenzhen-based company needs to make networking gear and smartphones. Investors have reacted with relief by sending its shares up more than 20 percent while China is said to be pushing local carriers to consider boosting orders.

While the U.S. ban was in place, the company shut down its major operations. Now that it has been cleared to resume business, ZTE is trying to mobilize workers but is having trouble convincing the thousands who hail from distant provinces to return to the fold, the people familiar said. Comprising as much as three-quarters of its factory force, they’d long scattered from ZTE’s base to return to their hometowns and can’t be recalled on short notice, the people said.

Compounding the issue, ZTE pays its laborers, often sourced from third-party agencies, less than other major employers in the region. The Chinese firm recently offered 13 yuan ($1.95) an hour to prospective assemblers, according to a recruitment notice obtained by Bloomberg. That compares with the 21 yuan proffered by Foxconn Technology Group, Apple Inc.’s main manufacturer, according to the same notice.

ZTE declined to comment about problems securing workers and the time it will take to get operations up to speed.

While facilities in Shenzhen and the central Chinese city of Changsha began running Sunday, they remain well below optimum capacity, the people said. Some assembly lines had fewer than half the workers they needed as of Monday to function at top speed, though engineers are prepping to open more lines as employees come in. As recruitment continues, the labor shortage is expected to ease, the people said.

Meanwhile, ZTE’s sales teams in Europe, Southeast Asia and Latin America have begun reaching out to existing and potential clients, one of the people said. The company is concerned about losing business: it’s already said to have lost a 600 million-euro ($700 million) contract to supply wireless equipment to Wind Tre SpA, to Ericsson AB.

ZTE, which breached trade sanctions to Iran and then lied about it, won its reprieve by paying $1.4 billion in penalties, changing its entire board and appointing a new chairman. It also agreed to allow U.S. compliance monitors. The company estimates its losses at $1.3 billion in the first half alone.

In the longer term, the new management faces the challenge of rebuilding trust with phone companies and corporate customers -- particularly abroad. The government has sent notices encouraging China’s three telecom carriers to consider awarding more deals to ZTE, one of the people familiar said.

China’s Ministry of Industry and Information Technology didn’t immediately respond to a faxed request for comment.

China Mobile Ltd., the largest, granted at least 70 percent of a broadband construction deal to ZTE on Monday, according to a notice on its website. The much-needed deal will generate about 487 million yuan in revenue for ZTE, which competes with larger cross-town rival Huawei Technologies Co.

Then there’s the issue of talent recruitment beyond factory workers, one of the people said, in part because it’s proven difficult to convince people of ZTE’s prospects given the damage dealt by the U.S. action. The company however remains active in recruiting new graduates, one of the people said.

To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net

©2018 Bloomberg L.P.

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