ZTE Aims to Raise $1.66B to Fund 5G R&D

ZTE plans to raise RMB11.46 billion (US$1.66 billion) from a new share issue that, in part, will go towards its 5G R&D efforts.

The Chinese vendor says it will issue 381 million new shares to ten professional and institutional investors and that the proceeds will go towards "technology research and product development relating to 5G network evolution" and the "replenishment of working capital."

Like its fierce local rival Huawei, ZTE is in line to pick up substantial 5G network equipment deals from China's network operators -- it claims to have more than a third of China's 4G network equipment market and expects to hit the same market share in 5G -- but substantial investments are needed to deliver to their requirements. But it's off to a good start: "ZTE worked closely with three major Chinese operators (China Mobile, China Telecom, and China Unicom) to build their phase-one 5G networks and took the lead in equipment delivery and commissioning during the projects," the vendor noted in an end-of-year review published on its website.

Beyond its domestic market, ZTE is not in the top tier of radio access network (RAN) suppliers -- that sector is dominated by Ericsson, Huawei and Nokia, which between them command about 80% of the RAN market. That leaves about a fifth of the market for ZTE and others, including an increasingly confident Samsung and a growing range of open RAN vendors such as Altiostar, Mavenir and Parallel Wireless.

Naturally, ZTE wants to maximize its opportunities, grow its market share and, if possible, break into new accounts as it continues its financial recovery from the nadir of 2018.

The company says its has secured 35 commercial 5G contracts in total, with 32 outside China across various markets in Asia-Pacific, Europe, the Middle East and Africa -- but the size and value of those deals is unknown.

ZTE's most recent public statements note that it "commits 10% of its annual revenues to research and development," but it has been pumping a greater portion of its sales into R&D in recent times: In the first nine months of 2019, the vendor's R&D investments totaled RMB9.3 billion ($1.35 billion), equivalent to 14.6% of total sales during that period, according to an end-of-year review published on its website. Clearly, the vendor feels it needs more 5G R&D cash if it's not to be left behind by its bigger, stronger 5G rivals.

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— Ray Le Maistre, Editor-in-Chief, Light Reading