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China ZTE Expects Sales Abroad To Bring 40% Rev In 2006
Sunday November 28, 2:27 PM

http://asia.news.yahoo.com/041128/5/1sa8y.html

HONG KONG (Dow Jones)--China's No. 2 telecom equipment maker ZTE Corp. (0763.HK) said Sunday it expects overseas sales to rise to contribute around 40% of its total revenue in 2006, compared with 13.4% posted in the first half of 2004.

The Shenzhen-listed company, which plans to raise around US$398 million through its listing in Hong Kong on December 9, said overseas business and handset sales will be the main growth drivers going forward.

"The telecommunications landscapes in emerging markets now are similar to that of China five to 10 years ago," said ZTE Chairman Hou Weigui at a video conference with reporters.

"Due to our successful experience at home in the past, we are able to compete effectively and cover the needs of our customers in those regions, both for CDMA and GSM standards," he said.

Code Division Multiple Access and Global System for Mobile Communications are two incompatible wireless standards.

ZTE plans to sell 141 million shares, or 15% of its enlarged share capital, at HK$17.5 to HK$22.0 per share, excluding fees, for its initial public offering. The company will fix the IPO price on Dec. 3. There is an overallotment option to sell shares representing 13.5% of the total number of shares offered.

ZTE is setting the first example of a Chinese-listed company seeking overseas listing in Hong Kong.

The company will use 60% of its proceeds on overseas expansion and 40% on research and development.

ZTE expects to book around CNY900 million on capital expenditure in 2005, mainly on construction of its R&D center and purchase of other facilities, up from an estimated CNY400 million for 2004.

Company President Yin Yimin told reporters while ZTE hasn't built any third-generation telecom network anywhere in the world, it has been participating in a number of commercial trials for 3G networks, including the three wireless standards currently considered by the Chinese government.

"We are well-prepared for 3G rollout under all three standards," Yin said.

The Chinese government has never said publicly how or when it will license phone companies to offer 3G services, or specified which technologies will be used.

The three standards being considered are China's homegrown Time Division-Synchronous CDMA or TD-SCDMA, wideband code division multiple access or WCDMA and CDMA2000, which is incompatible with WCDMA.

At the end of Sept. 30, ZTE's short term and long term bank borrowings totaled CNY1.87 billion.

In the first half to June 30, ZTE made net profit of CNY724.1 million, up from CNY317.6 million in the corresponding period of 2003, under Hong Kong accounting standards.

Third quarter net profit this year was CNY213.2 million, up from CNY82.2 million in the same quarter last year, due to increased handset sales.

The company said in its prospectus that contribution from its equipment sale for personal handyphone system, or PHS, network in 2004 will be lower than that in 2003, as domestic service providers shift the focus of their capital spending from PHS systems in anticipation of introduction of 3G in China.

In the handset segment, the company continues to experience pricing pressure, particularly in GSM and PHS handsets.

PHS network equipment sale accounted for 29.7% of ZTE's revenue in the first half of this year, and 43.2% in the entire 2003, while PHS handset sales brought in 15.9% of revenue in the first half.

Goldman Sachs is the sole global coordinator and sole bookrunner for ZTE's IPO.