Light Reading

Sales Slump Takes Shine Off ZTE's Profits

Ray Le Maistre

As previewed earlier this year, ZTE's efforts to get its finances back in order and become a profitable operation once again have been successful, with the Chinese vendor today reporting a net profit of 1.36 billion Yuan Renminbi (US$219 million) for the full year 2013, compared with a loss in 2012. (See ZTE Returns to the Black.)

But that headline number, while positive, doesn't really tell the story of ongoing challenges at ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which now needs to focus its attention on how to reverse its declining sales and generate an operating profit.

ZTE's full-year revenues dipped by an alarming 10.6% to RMB75.2 billion ($12.1 billion), while the company reported a full-year operating loss of RMB1.5 billion ($241 million), managing to report a net profit only because of a massive increase in tax rebates and other subsidies. (Note: These are the reported numbers under Chinese accounting rules: ZTE is also listed on the Hong Kong exchange, which has different accounting rules, under which ZTE made an operating profit for the year.)

The dip in full-year sales is in stark contrast to its local and global rival Huawei Technologies Co. Ltd. , which is set to announce an increase of about 8% in audited revenues for 2013, taking its total sales for last year to almost RMB240 billion ($38.6 billion). (See Huawei's Operating Profit Soars.)

The numbers were not a big surprise to investors, as ZTE's share price dipped by just 1% to RMB12.78 on the Shenzhen stock exchange.

The main reason for the decline in full-year revenues was a slump in mobile handset sales. The vendor's Terminals business line registered a year-on-year revenues decline of 24.7% to RMB21.7 billion ($3.5 billion). In its annual report, ZTE noted that sales of feature phones, data cards and 3G devices for the Chinese market declined in 2013, adding that it was determined to enhance the "competitiveness of its terminal products, repackaging them as consumer goods with a more Internet-driven mentality."

Revenues from the Carrier Networks infrastructure business were also down, by 2.2% year-on-year to RMB40.7 billion ($6.6 billion), though the vendor didn't pinpoint any particular weak areas in its portfolio, noting in fact that it experienced "fast growth" in sales of broadband access and switching products.

Without breaking out its numbers any further (apart from one instance), ZTE reported that its next-gen wireless network products had done well, with its 4G LTE business performing well in China, where ZTE claims it "edged its peers in market shares for 4G product tenders." ZTE is so pleased with its 4G performance that it noted (in a company infographic) that its 4G LTE revenues doubled year-on-year to reach $800 million in 2013. (See China Mobile, ZTE Kick Off VoLTE Rollout , Report: Huawei, ZTE Win Big at China Mobile, and ZTE Claims IMS Lead Partner Status at China Unicom.)

It also boasted of the "successful commercial application of its Cloud Radio solution," and referenced its active engagement in 5G R&D. However, revenues from 2G and 3G equipment in China and overseas, and CDMA gear in overseas markets, declined compared with 2012.

Revenues from ZTE's Telecommunications Software Systems, Services and Other Products business unit also dipped, by 6.3% to RMB12.8 billion ($2.1 billion). ZTE siad the decline was mainly due to a dip in the sales of "video and network terminal products in both domestic and international markets."

Overall, domestic revenues accounted for 47.4% of total 2013 sales.

There seems little doubt that ZTE will continue to win further 4G LTE business in its domestic market, but it's also clear that the company also needs to start making inroads into its target markets of the cloud, the data center, and analytics to help get all its numbers heading in the right direction again. (See ZTE Champions the Cloud, Analytics.)

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

(1)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
R Clark
R Clark,
User Rank: Blogger
3/27/2014 | 5:18:35 AM
Handset problem
Most of that profit (806m yuan) came in the fourth quarter, probably due to 4G sales in China, and still its stock got marked down 5% in Hong Kong today.

The handset division is where the problem is - 25% is a big drop for what is supposed to be a growth business.
From The Founder
The comms industry is rallying to the cause of open, independent interoperability testing.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Interviews
Top Tips for FTTH Operators

10|8|15   |   02:26   |   (0) comments

At Gigabit Europe 2015, Ventura Team co-founder Richard Jones talks about some of the key business case considerations for FTTH network operators.
LRTV Interviews
M-net Calls for FTTx Unity

10|8|15   |   03:45   |   (0) comments

At the Gigabit Europe event, Jörn Schoof from M-net, the Munich city network operator, calls for industry collaboration on fiber broadband access rollouts.
LRTV Documentaries
The Business Case Challenge for NFV

10|7|15   |   03:47   |   (0) comments

Virtual CPE is one of the early success stories for network functions virtualization, as service providers are finding flexible, programmable CPE solves a lot of logistics problems and reduces their cost. But even here, Masergy Communications faced a business case challenge, says CTO Tim Naramore.
LRTV Interviews
JT Offers Some Gigabit Lessons

10|7|15   |   4:08   |   (1) comment

Barna Kutvolgyi, managing director, Global Consumer, at JT, the incumbent operator on the island of Jersey, talks about how other service providers can learn from his company's gigabit broadband rollout experiences.
LRTV Interviews
AT&T's Chiosi on the Potential of Open Source

10|6|15   |   06:27   |   (0) comments

AT&T Distinguished Network Architect Margaret T. Chiosi talks to Light Reading's Carol Wilson about the potential for open source technology to liberate communications service providers.
LRTV Interviews
Network Security in a Gigabit World

10|6|15   |   05:52   |   (0) comments

Masergy's James Harrison talks about some of the network security and data center issues network operators need to consider as they expand their broadband services portfolios.
LRTV Documentaries
Telefónica: In Search of Virtual Simplicity

10|5|15   |   07:30   |   (0) comments

Francisco-Javier Ramon Salguero, head of Telefónica's NFV initiative, admits virtualization initially means greater complexity, but with the right abstraction layer, it is possible to create a services-driven network architecture. He explains how Telefónica's current trials and initiatives are aimed at doing that, and what his company and other carriers need to ...
LRTV Interviews
Gigabit Europe Takeaways

10|5|15   |   03:47   |   (0) comments

Participants from the inaugural Gigabit Europe event in Munich share their key takeaways from the conference.
Women in Comms Introduction Videos
Intel Urges Women to Take Advantage of Their Seat at the Table

10|5|15   |   4:27   |   (1) comment

Have inclusive and constructive conversations, attach a bigger meaning to your work and get involved in the cause, Intel's Monique Hayward advises women in comms.
LRTV Interviews
BT Updates on Plans

10|2|15   |   03:16   |   (2) comments

Peter Bell, CIO at Openreach, the access network division at UK incumbent BT, provides an update on the operator's trials and how Openreach is planning to deploy the broadband technology in its street cabinets.
Telecom Innovators Video Showcase
Sonus Shakes Up SD-WAN

10|2|15   |   7:22   |   (0) comments

Sonus CTO Kevin Riley sat down with Light Reading to discuss the trajectory of the company, its SDN ambitions and why Sonus is taking a market-disruptive approve to SD-WAN.
LRTV Interviews
CityFibre's Gigabit Vision

10|1|15   |   03:18   |   (1) comment

Mark Collins, director of Strategy & Public Affairs at competitive UK city network operator CityFibre, talks about his company's plans to help build Gigabit Cities.
Upcoming Live Events
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
November 5, 2015, Hilton Santa Clara, Santa Clara, CA
November 17, 2015, Santa Clara, California
December 1, 2015, The Westin Times Square, New York City
December 2, 2015, The Westin Times Square, New York City
All Upcoming Live Events
Network appliances have a strong value proposition in today's networks and will continue to do so in the NFV and SDN-enabled networks of tomorrow.
Hot Topics
Eurobites: Dunroamin'
Paul Rainford, Assistant Editor, Europe, 10/2/2015
M&A Speculation Swirls Around Juniper
Ray Le Maistre, Editor-in-chief, 10/6/2015
Cisco's Chambers Rules Out Political Bid
Mitch Wagner, West Coast Bureau Chief, Light Reading, 10/6/2015
Infinera Fleshes Out Its Metro 100G Story
Ray Le Maistre, Editor-in-chief, 10/7/2015
AT&T Gets Green Light for VoWiFi
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 10/7/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
With so many new and exciting communications technologies now under development, it's easy to get caught up in the industry's escalating hype cycle. That's why the ...
Last week saw a big day in the 15-year history of Light Reading when Editor-in-Chief Ray Le Maistre and I were invited to interview the Deputy Chairman and Rotating ...
Cats with Phones
"What?! I'm on with Finisar about their stock price tanking" Click Here