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ZTE Returns to the Black

Ray Le Maistre
1/20/2014
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ZTE says its restructuring efforts during the past few years resulted in a return to profitability in 2013.

After years of sales growth and profits, the Chinese vendor suffered a setback in 2012, reporting a 2.4% year-on-year decline in revenues to 84.22 billion Yuan Renminbi ($13.9 billion) and a net loss of RMB 2.84 billion ($469 million).

That decline in fortunes resulted in an operational review and wide-ranging cost-cutting measures. (See ZTE Reports Losses, Plans Closures.)

Those efforts have paid off, as ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) announced Monday that its full-year 2013 net profit is set to be between RMB 1.2 billion and RMB 1.5 billion ($198 million to $248 million) once its results have been audited.

The company states that it "strengthened its management over contract profitability and exercised stringent control over the execution of low-gross margin contracts," and "strengthened its control over costs and expenses with enhanced efficiency," noting that total expenses in 2013 were "significantly lower" than in 2012.

In its press release announcing the return to profitability, ZTE noted that it has "rigorously implemented changes in strategy, operations and corporate organisation in the past two years, making it a priority to improve operational efficiency and returns on investment, alongside business growth." Indeed, only recently the company announced a reorganization of its business and appointed some new senior executives. (See ZTE Reorgs for Mobile Device Domination.)

"Business growth" will be a greater challenge than cutting costs and shuffling the chairs around the top table, though. The vendor reported a significant year-on-year dip in revenues during the first half of 2013, so the company will have needed a major bump in its second-half sales to register a rise in full-year revenues. (See ZTE Suffers Sales Slip in First Half.)

It's possible, though, that the significant investments in 4G infrastructure in China may have given ZTE a major boost towards the end of the year. (See China Unicom Calls 4G Tender, China Issues 4G TDD Licences, China Holds Key to LTE TDD, and Report: Huawei, ZTE Win Big at China Mobile.)

For more on ZTE, see:

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

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R Clark
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R Clark,
User Rank: Blogger
1/20/2014 | 8:20:18 PM
Re: Safest prediction for 2014
It's stil a small vendor; its total carrier sales last year were around $9 billion.

The two figures to watch for in its full-year result:

- How big is the handset division? It accounted for 33% of sales last financial year, up 3 points.

- How much debt is it carrying? Its loan repayments grew 159% between 2010-2012, most likely because of its heavy vendor finance programme.
Ray@LR
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Ray@LR,
User Rank: Blogger
1/20/2014 | 1:36:21 PM
Safest prediction for 2014
However the second half  of 2013 worked out for ZTE, I think it's safe to say that the ramp in spending by CHina Mobile, Telecom and Unicom this year on 4G access and transport infrastructure should result in a year-on-year rise in revenues for ZTE.

Can it ever be a top four telecom vendor though? 
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