Light Reading
After a loss in 2012, ZTE was back in the black last year thanks to tax rebates, but its sales dipped significantly.

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
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.
Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Huawei Video Resource Center
Dr. Dong Sun Talks About Carriers' Digital Transformation & Huawei’s Telco OS

1|29|15   |   6:28   |   (0) comments


Dr. Dong Sun, Chief Architect of Digital Transformation Solutions at Huawei, discusses how telecom operators can become digital ecosystem enablers and deliver optimal user experiences that are in real-time, on-demand, all-online, DIY and social (ROADS).
LRTV Huawei Video Resource Center
Huawei's Chief Network Architect Talks about Network Experience & Operators’ Strategies

1|29|15   |   3:39   |   (0) comments


In the digital age, network experience has become the primary productivity especially for telecom operators. In this video, Wenshuan Dang, Huawei’s Chief Network Architect, discusses how carriers can tackle the challenge of infrastructure complexity in order to enhance business agility and improve user experience.
LRTV Documentaries
The Rise of Virtual CPE

1|27|15   |   01:38   |   (5) comments


As NFV strategies evolve from tests and trials to production telco networks, expect to hear a lot about virtual CPE (customer premises equipment) rollouts during 2015.
LRTV Documentaries
Optical Is Hot in 2015

1|23|15   |   01:56   |   (2) comments


Optical comms technology underpins the whole communications sector and there are some really hot trends set for 2015.
LRTV Custom TV
Policy Control in the Fast Lane

1|22|15   |   2:57   |   (0) comments


What's making policy control strategic in 2015 and beyond? Amdocs talks with Heavy Reading's Graham Finnie about the key factors driving change in the data services landscape. Find out what his policy management research reveals about the road ahead for policy control – and sign up for
LRTV Documentaries
Highlights From the 2020 Vision Executive Summit

1|21|15   |   4:33   |   (2) comments


In December 2014, Light Reading brought together telecom executives in Reykjavik, Iceland to discuss their vision for high-capacity networks through the end of the decade. The intimate, interactive meeting was set against the backdrop of Iceland's spectacular natural beauty. As one of the event's founding sponsors, Cisco's Doug Webster shared his company's ...
LRTV Huawei Video Resource Center
Huawei Pay-TV Partner Harmonic, Helping Carriers Accelerate 4K Video Deployment with Huawei

1|20|15   |   5:42   |   (1) comment


At IBC, Peter Alexander, Senior Vice President & CMO at Harmonic, speaks about the growing interest in pay-TV service and its branching into multiple devices.
LRTV Huawei Video Resource Center
Sony Marketing Director Olivier Bovis Discusses the Outlook for 4K and Cooperation With Huawei at IBC 2014

1|20|15   |   6:50   |   (0) comments


At IBC, Olivier Bovis, Marketing Director of Sony, speaks about the coming of the 4K era.
LRTV Huawei Video Resource Center
Huawei Pay-TV Partner Envivio, Helping Carriers Accelerate 4K Video Deployment

1|20|15   |   2:57   |   (0) comments


At IBC, Olivier Bovis, Marketing Director of Sony, speaks about the coming of the 4K era.
LRTV Huawei Video Resource Center
Pay-TV's Networked Future

1|20|15   |   6:29   |   (0) comments


At IBC, Jeff Heynen, Principal Analyst at Infonetics, speaks about the future of the pay-TV industry and its transition.
LRTV Huawei Video Resource Center
Jeff Heynen: Distributed Access Will Help MSOs Compete in the Future

1|20|15   |   2:26   |   (0) comments


At IBC, Jeff Heynen, Principal Analyst at Infonetics, speaks about moving to distributed access and the future trend of cable business.
LRTV Interviews
Cisco Talks Transformation

1|20|15   |   13:02   |   (0) comments


In December 2014, Steve Saunders sat down with Cisco VP of Products & Solutions Marketing Doug Webster at Light Reading's 2020 Vision executive summit in Reykjavik, Iceland. They spoke about Cisco's approach to network virtualization as well as how service providers can begin to monetize high-capacity networks through the end of the decade.
Upcoming Live Events
February 5, 2015, Washington, DC
February 19, 2015, The Fairmont San Jose, San Jose, CA
March 17, 2015, The Cable Center, Denver, CO
April 14, 2015, The Westin Times Square, New York City, NY
May 12, 2015, Grand Hyatt, Denver, CO
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 8, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 9, 2015, Chicago, IL
September 9-10, 2015, The Westin Galleria Dallas, Dallas, TX
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
November 11-12, 2015, The Westin Peachtree Plaza, Atlanta, GA
December 1, 2015, The Westin Times Square, New York City
December 2-3, 2015, The Westin Times Square, New York City
Infographics
Hot Topics
Google Continues Gigabit Expansion
Jason Meyers, Senior Editor, Gigabit Cities/IoT, 1/27/2015
Comcast Apologizes to 'A**hole' Brown
Mitch Wagner, West Coast Bureau Chief, Light Reading, 1/29/2015
US Ops Spend $32.5M to Bring 4G to Chicago's Subways
Sarah Thomas, Editorial Operations Director, 1/30/2015
Cablevision's New WiFi Try – Freewheeling Enough?
Mari Silbey, Independent Technology Editor, 1/26/2015
Overture Builds on NFV Foundation
Mitch Wagner, West Coast Bureau Chief, Light Reading, 1/27/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Weekly Executive Interview
Join us live for Light Reading's interview with Jay Samit, the newly appointed CEO of publicly traded SeaChange International Inc. With a resume that includes Sony, EMI, and Universal, Samit brings a reputation as an entrepreneur and a disruptor to his new role at the video solutions company. Hear what he has to say about the opportunities in video, as well as the outlook for cable, telco, OTT and mobile service providers.