At the opening of the market on the morning of March 23, the A-share 5G sector rose sharply, and Oriental Communications (600776. SH), Wuhan Fangu (002194. SZ), Jida Communications (300597. SZ), Huiyuan Communications (000586. SZ) and many other stocks up and down.
The warmth of the 5G plate may be related to ZTE.
At noon, ZTE announced that it had received a judgment from the U.S. District Court for the Northern District of Texas ruling not to revoke ZTE's probation (i.e., the probation would expire on March 22, 2022 [U.S. time]) without any penalty, and confirmed that the term of office of the Ombudsman would end on March 22, 2022 (U.S. time). After the company's application to the Shenzhen Stock Exchange, the company's A shares and H shares resumed trading from the opening of the market on the afternoon of March 23.
Performance of individual stocks in the 5G sector. Source: Flush
ZTE: Will comprehensively carry out the construction of the compliance system
After ZTE resumed trading, the A-share straight line pulled up and down, and the amount of up-and-down board sealing orders reached 2.6 billion yuan, and H shares rose by more than 48% at one point. ZTE said that the company is committed to building a world-class compliance enterprise, adhering to compliance as the cornerstone of strategic development and the bottom line of operation, complying with the applicable laws and regulations of the country where the business is located, and comprehensively carrying out the construction of the compliance system. The company is confident in the effective operation and continuous improvement of the compliance management system, and will continue to fulfill its responsibilities to customers, employees, shareholders and partners around the world, and actively promote innovation and sustainable development of the global ICT industry.
Source: Flush
ZTE is one of the leading communication equipment suppliers in the global telecommunications market, with operations covering more than 16 countries and regions. In 2021, ZTE's operating income and net profit hit record highs. The company achieved operating income of 114.52 billion yuan, an increase of 12.9% year-on-year; net profit attributable to the mother was 6.81 billion yuan, an increase of 59.9% year-on-year. Among them, the domestic market achieved operating income of 78.07 billion yuan, an increase of 14.7% year-on-year, accounting for 68.2% of the overall operating income; the international market achieved operating income of 36.45 billion yuan, an increase of 9.1% year-on-year, accounting for 31.8% of the overall operating income.
ZTE 2021 Annual Report Source: Flush
Looking forward to 2022, ZTE said that the global situation still faces great uncertainty. At the same time, the in-depth promotion of domestic 5G, the acceleration of industry applications, the emergence of a dual-carbon economy, the development of new infrastructure, and the unstoppable wave of digitalization. 5G has accelerated the digitization process, and the wave of digitalization has promoted the further integration of ICT technologies such as 5G with traditional industries. ICT technology has opened up new growth space in the process of empowering the digitalization of the industry.
ZTE also said that in terms of new business, the group has accelerated its efforts in IT business, digital energy business and smart home, promoting it to become a new engine for the company's performance growth. In the IT business, the Group focuses on building the underlying competitiveness of IT hardware such as servers, quickly creating new tens of billions of products; comprehensive ICT technology software and hardware advantages, strengthening the expansion of automotive electronics business, grasping the opportunities of intelligent and networked transformation in the automotive field; and establishing two special teams in mining and metallurgical steel subdivisions to help the digital transformation of the industry with 5G applications, IT and big data. In the digital energy business, the Group integrated the establishment of the Digital Energy Products Business Department, strengthened the operation of power supply, IDC data center and other products and actively expanded the new energy business. In the smart home, the Group set up a smart home product line, giving full play to the advantages of existing family information terminal products, and vigorously expanding consumer-oriented home intelligent products.
Brokerage view: good for the recovery of valuation in the communications industry
China Merchants Securities Research Report said that ZTE's victory is good for the recovery of the valuation of the communication industry, and the bottom of the plate suggests a left layout. From 2020 to 2021, the valuation of the communication sector continues to decline, and ZTE's victory is expected to help the emotional recovery of the sector. The communication equipment track is highly globalized, the relationship between overseas operators and Chinese suppliers may be reproduced, and the overseas territory continues to expand. Global cloud CapEx has entered the upward channel, and operators have increased their investment in industrial digitalization and transmission networks. North America's epidemic recovery, cloud vendors follow-up investment in data centers increased, of which Facebook announced that capital expenditure in 2022 from 19 billion US dollars to 29-34 billion US dollars, is expected to drive the demand for optical transceiver industry chain, domestic optical module manufacturers global competitiveness further enhance. Domestic operators increase investment in transmission networks, infrastructure and other aspects, and China Telecom expects that industrial digital investment will increase by more than 60% year-on-year in 22 years.
【Review】
ZTE incident
On June 10, 2010, the United Nations adopted a resolution on the Iranian nuclear issue, deciding to launch a fourth round of sanctions against Iran. Then, on June 16, the United States announced an export ban on Iran, including dual-use parts made in the United States.
In 2012, ZTE signed a contract to sell a number of products mixed with software and hardware of American technology companies to Iran Telecom (TCI), Iran's largest telecommunications operator. The move violated the U.S. export ban on Iran and was investigated by the U.S. Department of Commerce. The U.S. Department of Commerce announced its final findings and opinions, including Chinese companies such as ZTE on the "Entity List" for violating U.S. export control regulations, and taking export restriction measures against ZTE.
In March 2017, ZTE and the U.S. government reached a settlement in respect of the case, in which ZTE paid a criminal and civil fine of about $890 million, and the U.S. Department of Commerce's Bureau of Industry and Security imposed a $300 million fine on ZTE, depending on ZTE's compliance with the agreement over the next seven years. This has also become the highest amount of fines imposed on Chinese companies in the United States. As a condition of pleading guilty, ZTE agreed to dismiss four senior managers and punish 35 others.
On April 16, 2018, the U.S. Department of Commerce announced that it banned U.S. companies from selling parts to ZTE for 7 years, and said ZTE violated the settlement agreement reached with the U.S. government in 2017.
On April 16, 2018, the ban was re-enacted after the U.S. Department of Commerce alleged that ZTE made false statements in letters submitted to the U.S. government in November 2016 and July 2017.
On May 9, 2018, ZTE issued an announcement stating that "due to the impact of the rejection order, the Company's main business activities can no longer be carried out".
On May 22, 2018, when then-US President Donald Trump met with the media at the White House, he said that the initial determination of a huge fine of $1.3 billion and the change of the company's leadership and board of directors was initially determined as a condition for relaxing the seven-year ban on the company.
On May 25, 2018, the U.S. Department of Commerce notified the U.S. Congress that it intends to conditionally lift the ban restricting U.S. companies from selling accessories and software products to ZTE.
On June 7, 2018, the U.S. Department of Commerce officially announced that it has reached a new settlement agreement with ZTE, and the United States will lift the ban on ZTE.
On July 14, 2018, ZTE said on social media that it would "start again with confidence." At the same time, the LED billboard of ZTE headquarters hung up "Unbanned!" Pain and pain! Journey again! " slogan.
On March 4, 2022, ZTE announced that it would attend a hearing on the suspension of sentence on March 14. The hearing was related to a former ZTE employee suspected of visa fraud, though ZTE said the employee had long since left and that ZTE had not been charged in the visa case.
After the settlement between the two sides, the United States set up a supervision period against ZTE. During the monitoring period, if ZTE complies with the terms of the agreement, it will not need to pay additional fines, otherwise it will continue to be sanctioned. March 22, 2022 (US time) is the last day of the surveillance period.