ZTE Ramps 2008 Revenues

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) defied the economic downturn in 2008 with a 27.4 percent increase in annual revenues to 44.3 billion Yuan Renminbi ($6.5 billion) and a near 33 percent rise in net profit to RMB1.66 billion ($243 million). (See ZTE Reports 2008.)

The figures show how much the company has progressed in the past two years: 2008's revenues are almost double those of 2006, when the company reported revenues of RMB23.2 billion.

Despite the disruption of the carrier reorganization process and the Olympic Games, last year's sales growth came from the vendor's domestic market as well as from overseas. (See China Begins Carrier Revamp.)

In China, the vendor's sales grew nearly 19 percent to RMB17.5 billion ($2.56 billion), driven by early 3G rollouts and fixed broadband expansion. (See China Awards 3G Licenses, China Mobile Preps LTE Network, Unicom Plans Capex Blowout, China Telecom Unveils CDMA Plans, and Investments Line Up for Chinese 3G.)

And it looks like there's more of the same on the way. ZTE's chairman Hou Weigui stated in the company's earnings announcement that the vendor "expects to see growth opportunities in the domestic market." (See China’s Operators Prep Next 3G Wave, China to Top Capex Table , and China's 3G Move to Trigger Spending.)

ZTE believes it's already the leading provider of 3G infrastructure to the country's three main operators, claiming to have landed about 30 percent of the business awarded so far.

International sales also grew, by 33.5 percent to RMB26.8 billion ($3.9 billion), to account for nearly 61 percent of all revenues. The vendor notes that while "the impact of the financial crisis will continue to be felt" in 2009, ZTE will focus on achieving "major breakthroughs in developed countries" and steadily growing its business in developing markets.

In its annual results filing with the Hong Kong Stock Exchange, ZTE noted that it had cemented its position in India, and had made "breakthroughs in markets where we traditionally lagged behind, such as the Middle East, CIS and South America."

Unlike its chief domestic rival, Huawei Technologies Co. Ltd. , ZTE is still struggling to generate significant revenues from developed markets, though: Only 16 percent of its 2008 sales came from outside Asia/Pacific and Africa. And the business practices of some of its staff don't help its cause sometimes, either. (See Telenor Bans ZTE From New Deals and the table below.)

Table 1: ZTE 2008 sales by region

Region	2008 Revenues in RMB millions	% of 2008 revenues
China	17,466	39.4
Asia/Pacific (excluding China)	10,433	23.6
Africa	9,311	21
Others	7,083	16
Total	44,293	100
Source: ZTE

Of ZTE's overall revenues, 65.4 percent came from telecom infrastructure, 21.9 percent from handsets, and 12.7 percent from software, services, and other products.

The company noted in its annual results filing with the Hong Kong Stock Exchange that it maintained "rapid year-on-year growth in global deliveries for GSM and WCDMA [infrastructure]," while "our business in optical transmission products continued to report rapid growth in Southeast Asia, Asia Pacific and South Africa, while considerable progress was also being made in America and Europe. At the home market, we held a dominant market share for FTTX products." (See ZTE Wins Thai Optical Deal, MWC 2009: SDR Coup for ZTE, ZTE Boasts WiMax Growth, ZTE Outlines GSM Ambitions, ZTE Touts Next Gen PON, and ZTE Touts Optical Success.)

Competitive and pricing pressure hit ZTE's infrastructure margins, though. In 2008, the gross margin on carrier network equipment sales was 35.8 percent, down from 39.6 percent in 2007.

But the gross margin for handset sales improved slightly, to 23.7 percent from 21.7 percent a year earlier, while the margin from software and services jumped to 30.3 percent from 16.7 percent in 2007. ZTE's overall gross margin for 2008 was 32.5 percent, down slightly from 2007's 32.7 percent.

ZTE ended 2008 with cash and cash equivalents of RMB11.3 billion ($1.66 billion).

Although the company didn't provide any guidance as to its 2009 financials in any documents today, it has stated previously that it expects to grow this year. (See Huawei, ZTE Predict 2009 Growth.)

ZTE's share price closed the day on the Hong Kong exchange at HK$28.60, up nearly 0.9 percent.

— Ray Le Maistre, International News Editor, Light Reading