Light Reading

Sales Slump Takes Shine Off ZTE's Profits

Ray Le Maistre
3/26/2014
50%
50%

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
50%
50%
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
Light Reading sits down at CES with the head of Cisco's service provider video business, Conrad Clemson, to discuss how NFV and cloud security relate to video, the challenge of managing 4K/8K traffic, the global expansion of Netflix and virtual reality.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Custom TV
Hosting in Ireland, Past & Present

2|10|16   |   16:07   |   (0) comments


Garry Connolly, president of Host in Ireland, presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
Women in Comms Introduction Videos
What's Hot in Mobile Commerce?

2|10|16   |   12:18   |   (1) comment


Claire Maslen, financial services relationship manager at the GSMA, talks about the development of the digital commerce sector and the types of relationships that mobile operators are developing to further their m-commerce strategies.
LRTV Documentaries
EANTC Tests Nokia IP Routing & Mobile Gateway VNFs for Real World Deployment

2|9|16   |   5:08   |   (0) comments


Nokia obtained validation of its virtualized router and virtualized mobile gateway capabilities through rigorous testing performed by EANTC. The results set a new industry benchmark for outstanding performance, scalability, resiliency and manageability. Nokia VNFs are ready for telco cloud deployment, so that service providers can accelerate mobile, business and ...
Between the CEOs
CEO Chat With Level 3's Jack Waters

2|8|16   |   26:15   |   (1) comment


Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
LRTV Custom TV
The Composable Telco

2|8|16   |   24:46   |   (0) comments


Heavy Reading's Principal Analyst Caroline Chappell presents the keynote at Light Reading's 2020 Vision Executive Summit in Dublin.
LRTV Custom TV
Join Us at the Digital Operations Transformation Summit

2|4|16   |   03:52   |   (0) comments


The Digital Operations Transformation Summit on February 21, 2016 at the Crowne Plaza Barcelona Fira Centre will bring together 50 senior executives to engage in a unique debate on the opportunities and challenges presented by the transformative evolving digital landscape. RSVP now at events@lightreading.com.
LRTV Custom TV
Making the Test: ADVA Ensemble Connector vs. Open vSwitch

2|4|16   |   01:28   |   (0) comments


Light Reading, in partnership with EANTC, recently tested ADVA's Ensemble Connector, which replaces open vSwitch and offers carrier-grade capability and interoperability. The test results strengthen ADVA's credibility as a provider in the virtualization space.
LRTV Custom TV
Bridging the Gap Between PoCs & Deployment in NFV

2|4|16   |   31:50   |   (0) comments


Charlie Ashton of Wind River presents the keynote at Light Reading's 2020 Vision executive summit in Dublin.
Between the CEOs
CEO Chat With Mike Aquino

2|3|16   |   17:34   |   (0) comments


The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Shades of Ray
MWC: Buckle Up for 5G & the IIoT

2|2|16   |   02:28   |   (0) comments


This year's Mobile World Congress looks set to be a 5G land grab and a chance to get down and dirty with the Industrial Internet of Things (IIoT) – but what will the 5G discussions actually be about?
LRTV Custom TV
Case Study: Building China's Next-Gen TV Networks

2|2|16   |   5:01   |   (0) comments


With over 2 billion viewers worldwide, Shenzhen Media Group is one of China's largest content producers. By partnering with Huawei and Sobey, SZMG was able to modernize media operations with the Converged News Center, a production studio that is a model for next-generation workflows.
LRTV Custom TV
Quad Channel Modulator Driver with 46 Gbaud Capability from MACOM

1|28|16   |     |   (0) comments


MACOM's MAOM-003427 is the industry's first surface-mount modulator driver with 46 Gbaud capability to support next generation 200G and 400G applications.
Upcoming Live Events
March 10, 2016, The Cable Center, Denver, CO
April 5, 2016, The Ritz Carlton, Charlotte, NC
May 23, 2016, Austin, TX
May 24-25, 2016, Austin Convention Center, Austin, TX
All Upcoming Live Events
Hot Topics
Google's 5G Radio Ambitions Are Expanding
Dan Jones, Mobile Editor, 2/5/2016
Cincinnati Bell Joins Weight Watchers Club
Alan Breznick, Cable/Video Practice Leader, 2/5/2016
Yahoo & Verizon Sitting in a Tree...
Brian Santo, Senior editor, Test & Measurement / Components, Light Reading, 2/8/2016
Vodafone: Flexible Work Policies Boost Profits
Sarah Thomas, Editorial Operations Director, 2/8/2016
It's Time to Integrate OTT Video
Alan Breznick, Cable/Video Practice Leader, 2/8/2016
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Light Reading CEO and founder Steve Saunders sits down with Level 3 Communications' CTO Jack Waters to discuss hot topics like virtualization, 4K and the future of telecom...
The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Animals with Phones
Retro Is the Way to Be Click Here
Some animals are too cute for smartphones.
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and G.fast for copper plant evolution and the various deployment possibilities for FTTH/B.