Tech Giants: Starting from Bankrupt Companies

201: Chapter 201 The First Shot of the Tech WarTen days after the IPO, Xinghuo Electronics held its first earnings briefing.

Zhang Yang stood on stage with a large screen behind him, displaying the company’s business structure.

”Xinghuo Electronics is not a single-business company,” Chen Ming said. ”We are a ’consumer electronics platform.’ It is divided into four major sectors:”

”First, the drone sector.”

The screen displayed the data:

Global market share: 50%

Product line: Consumer-grade (entry-level to flagship), professional-grade (film, agriculture, surveying and mapping), military-grade (military orders obtained)

Annual revenue: 50 billion rmb

”Second, the action camera sector.”

Global market share: 40%, the biggest competitor to GoPro.

Innovative product: 360-degree panoramic camera to be released in Q3 this year, capable of shooting 8K video.

Annual revenue: 10 billion

”Third, wearable devices.”

Smartwatch: Third in the world, 30% global market share, second only to Apple and Samsung.

Innovation: Developing medical-grade health monitoring, capable of measuring blood glucose, blood pressure, and ECG (medical device certification obtained).

Annual revenue: 40 billion

”Fourth, and also the most valuable—50% equity in Huaxing Telecommunications.”

The screen switched:

HX1 series mobile phones: Global sales exceeded 20 million units, with an average price of 5,600 yuan.

HX2 pre-sale: Scheduled for release in September 2018.

Annual revenue (calculated based on 50% shareholding ratio): Contributes approximately 55 billion.

Annual revenue from other consumer electronics products is approximately 10 billion.

”Total: Annual revenue is expected to be 165 billion, with net profit exceeding 60 billion.”

Analysts in the audience calculated quickly: Net profit 60 billion, market value 2.5 trillion, P/E ratio 41 times? No, that’s not right...

Zhang Yang added, ”This is our existing business. We are still expanding into new businesses: smart home, AR/VR devices, automotive electronics, and PCs. We expect revenue to exceed 500 billion in three years.”

This is the key: growth potential.

Analysts recalculated: If net profit reaches 150 billion in three years, corresponding to a market value of 5 trillion, the P/E ratio would drop to 33 times—reasonable.

After the press conference, major brokerages updated their research reports:

CICC: Target price raised from 150 yuan to 180 yuan.

Morgan Stanley: Gave an ”Overweight” rating.

Goldman Sachs: Compound growth rate expected to be 55% over the next three years.

Xinghuo Electronics’ stock price continued to rise.

And all this was just the beginning.

On the evening of April 10, Su Chen stood in front of the floor-to-ceiling window of his office, looking at the night view of Shenzhen.

This city had changed because of him.

Three years ago, Shenzhen was still the ”capital of copycats,” and Huaqiangbei was selling imitation mobile phones.

Now, Shenzhen is the ”capital of innovation,” with Xinghuo, Huawei, Tencent... a group of tech giants rising here.

Time passed quietly, and in the blink of an eye, it was April 12.

Washington, America Department of Commerce Press Conference.

8:00 PM Eastern Time, April 11, Washington.

The Department of Commerce press room was rarely open at night, and it was packed with reporters; everyone sensed something unusual.

Secretary of Commerce James Wilson stepped onto the podium; the 74-year-old man was known for his hardline anti-China stance.

He looked serious, without any opening remarks, and read the statement directly:

”Ladies and gentlemen, in accordance with the Export Control Reform Act and relevant regulations on sanctions against Persia, the Bureau of Industry and Security (BIS) of the Department of Commerce has decided: Effective immediately, American companies are prohibited from selling any goods, software, or technology to ZTE. The ban is valid for seven years.”

The audience erupted instantly.

Flashes went off frantically, and reporters almost rushed onto the stage.

Ross continued to read: ”Investigations show that between 2016 and 2017, ZTE exported communication equipment containing American technology to countries such as Persia and Korea, violating American sanctions agreements. More seriously, ZTE provided false statements during the investigation, obstructing justice.”

He pulled up a PPT to display the ”evidence”:

Email screenshots: ZTE employees discussing how to circumvent American sanctions.

Contract documents: Cooperation agreement between ZTE and a Persian telecommunications company.

Logistics records: Equipment containing American chips shipped to Tehran.

”ZTE’s violations were systematic and intentional,” Ross said coldly. ”This is a blatant challenge to our laws and the international order. The seven-year ban will ensure they pay the price for their actions.”

A reporter asked: ”Mr. Secretary, will the ban affect ZTE’s global business?”

”Yes,” Ross said bluntly. ”In ZTE’s base station equipment, 25-30% of components rely on American suppliers. This includes chips, radio frequency devices, optical modules, and software. Once the ban takes effect, these supplies will be immediately cut off.”

”What about ZTE’s customers? Many countries around the world use ZTE’s 4G/5G equipment.”

”That is a problem ZTE needs to consider,” Ross said expressionlessly. ”They should have thought about the consequences when they violated the rules.”

Another reporter asked: ”Does this mean the start of a tech war? Who will be the next target?”

Ross paused: ”America is committed to maintaining a rules-based international order. Any company that violates the rules will face consequences.”

This statement was pregnant with meaning.

Less than ten minutes after the press conference ended, The Wall Street Journal website updated its headline:

”The First Tactical Nuclear Bomb of the Tech Cold War: America Imposes Seven-Year Ban on ZTE”

Subtitle: ”Although the target is ZTE, the shockwave will sweep through the entire Chinese tech chain. Who is next? Huawei?”

Shenzhen · ZTE Headquarters

9:00 AM Beijing Time, April 12.

Shenzhen Science and Technology Park, ZTE Corporation headquarters building.

An emergency board meeting was being held in the conference room on the 36th floor. Outside the window, the sky was gloomy, as if it were about to rain.

Chairman Hou Zhenghua, 59, had graying hair. He looked at the ban document in his hand, his hands trembling slightly.

”Everyone, the situation is worse than expected,” he said in a hoarse voice. ”The seven-year ban covers all American goods, software, and technology. Our base station chips, radio frequency devices, optical modules... more than 30% rely on American suppliers. Once the ban takes effect, production lines will grind to a halt within 72 hours.”

The conference room was deathly silent.

Chief Procurement Officer Li Qiang broke the silence: ”We have contacted Qualcomm, Broadcom, Xilinx, Intel... all American suppliers have stated that they must comply with the ban and stop supplying immediately.”

”What about inventory?” someone asked.

”Critical chip inventory can support us for at most one month. Some special components only have two weeks.”

What was even more terrifying was the overseas business.

The President of Global Business reported: ”We have over 200 4G/5G base station construction projects globally. If equipment supply is interrupted, the projects will stagnate. According to the contract, there is a 0.1% penalty for each day of delay; if it accumulates...”

He didn’t finish, but everyone understood: astronomical claims for damages.

Hou Zhenghua closed his eyes.

He remembered three years ago, when America first sanctioned ZTE, the company almost went bankrupt. In the end, they paid an $890 million fine, reorganized the board, and accepted American supervision to get the ban lifted.

At that time, he thought that by paying the tuition, they could continue to do business.

Now he realized that some things cannot be solved with money.

”What about the stock price?” he asked.

”A-shares hit the daily limit down at the opening, and Hong Kong stocks plummeted by 40%,” the CFO said in a low voice. ”Market value has evaporated by over 50 billion. And... it’s still falling.”

Hou Zhenghua looked out the window.

He had struggled in this city of Shenzhen for thirty years. From the small office when ZTE was founded to today’s global communications giant.

Was it going to fall like this?

”Contact the Ministry of Commerce, contact the Ministry of Foreign Affairs,” he stood up. ”We need the country’s help.”