You may think that Lixin Cheng, the top banana at ZTE's USA division since June 2010, has had a tough time facing strong accusations regarding its ties with the Chinese government and its lack of transparency; but at MWC yesterday, the CEO told us that the investigation has actually been beneficial for his company.
"So far, the report really has no negative impact on our business in the US ... it actually helps us build the brand," said Cheng. "When the report came out, it was such a high profile news and everyone was talking about ZTE. Some of our handset consumers may call the hotline and say, 'Hey, I have a phone from ZTE, do I have security concerns?' And of course, most people would find out no, there are no security concerns."
We were surprised by Cheng's positiveness, but he was able to back it up with a few reasons. The exec stressed that unlike what the report claims, ZTE's approach has always been to offer full cooperation with the authorities, and that it would try to disclose anything it can without hurting its business interests.
"We always respect the US local laws, the US government and the US legislators' duties to protect the national interests of the US."
Cheng elaborated with the fact that ZTE is a public company trading in both China and Hong Kong, with the latter's stock exchange enforcing rules and requirements that are "on par with, if not higher than, the New York Stock Exchange." On a related note, we were told that within the company's "very transparent" governance structure, most of ZTE's 14 board of directors are independent -- including Timothy Steinert, a US citizen and a lawyer who practices law in both New York and Hong Kong. "All these are very unique about all Chinese companies," said Cheng. Similarly, 18 percent of ZTE shares are of non-Chinese ownership from the likes of Deutsche Bank, Morgan Stanley, SunTrust and Fidelity.
Of course, the report also argues that the aggressive foreign tech giants would pose a risk to local US jobs and innovations (which surely applies to non-Chinese companies as well), but Cheng believes it's more of a win-win situation for ZTE and its US ties. Citing his company's "ACW" (American, Chinese and Worldwide) business model, Cheng brought up a few US partners like Qualcomm, TI, Broadcom, Google and Microsoft to emphasize the US' contribution towards his products. On the other side of the field, ZTE would then leverage on Chinese R&D resources and supply chain management in order to bring out the products, which are then sold worldwide, of course. "So the more we succeed, we can bring more jobs and better economy for the US, so it's a win-win situation," said Cheng.
With an estimated net loss of at least $400 million in 2012, ZTE is already trying to get back in the game by restructuring to cut costs, as well as landing more profitable infrastructure contracts and putting a stronger focus on creating a design DNA; but it would certainly help to regain the trust of US carriers and, most importantly, the Congress (remember the story of Washington interfering with Chinese bids for a Sprint contract?). Of course, the recent slew of Chinese hacking news isn't exactly helping, but Cheng is still confident that ZTE can make use of the aforementioned report to increase brand awareness. "We're taking this opportunity to tell our story to the consumers, so I think that's our strategy," said the CEO.
Furthermore, ZTE will continue to keep every US carrier happy with its multiple handset SKU business, with this year expecting more than 20 different SKUs in the US, most of which will be LTE-enabled. "Because of our effective R&D process and efficient supply chain management, we will be able to support this kind of multiple SKU business. So then, every carrier is very happy to work with us," said Cheng. "That's why now we have good partnership with AT&T, Verizon, Sprint, T-Mobile, Cricket, MetroPCS, US Cellular, TracFone... everybody wants to go big time with us." That said, Cheng does hope to eventually move from the "B2B2C" stage to the "B2C" stage, where ZTE can push towards the direction of bringing more unified design IDs and names across carriers, but that may take two or three years before the company gets the bargaining power.