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Wobbly Chinese telecom giant 'may sack 12,000', shares nosedive

ZTE struggle to get feds off its ass, cash in the door

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Chinese telecoms kit maker ZTE is in for a rough ride: its shares fell to a three-year low on Monday amid a profit warning and rumours that it may axe up to 12,000 workers.

The firm, second in the domestic market for telecoms equipment behind Huawei, warned last week that its net profits for the first half of 2012 could fall by as much as 80 per cent year-on-year. Its stock slumped by more than 17 per cent in Hong Kong this morning.

Beijing-based IT consultancy Marbridge Consulting published rumours on Friday that ZTE may be preparing to jettison about 12,000 staff this year, with overseas workers particularly at risk.

It said that there had already been three rounds of employee recalls and lay-offs in overseas offices since the Chinese New Year on the back of sliding market share. It added that cash-flow problems have intensified in some markets where big contracts have led to long delays before payment.

As if that wasn’t bad enough, ZTE has been rocked by a series of probes into shady business practices.

The European Commission is investigating ZTE and and Shenzhen neighbour Huawei over allegations that the Chinese government illegally subsidised the firms, enabling them to offer their kit to customers at below cost, a process known as "dumping".

In addition, news emerged last week that the FBI is looking into allegations that the firm illegally sold US technology to Iran and then tried to cover up its dealings when exposed by journalists.

The US House of Representatives Intelligence Committee is also on the case, investigating the firms’ ties with the Chinese government and accusations that their kit may pose a national security risk.

Meanwhile, executives from both firms were sentenced in their absence to serious bribery offences in Algeria.

Back in December analysts voiced concerns about ZTE, with Gartner downgrading its evaluation of the firm's strategy from "positive" to "promising":

In 2011 ZTE added enterprise telecom solutions and cloud computing to its portfolio, further expanding its product line. However, this market expansion had a negative impact on the company's cash flow in 1H11. As a cost leader in the market, aggressive expansion could put its financial status at risk.

ZTE did not immediately respond to a request for comment on the rumour of mass lay-offs. ®

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