ZTE's device business poised to fire up growth

ZTE's device business could be the fire that lights up the vendor's rebound.

The consumer unit grew by a healthy 67% in the first half to 12.4 billion yuan (US$1.95 billion) and now accounts for nearly a quarter of total revenue.

The unit is on track for its best revenue performance since 2017. While it may not be selling in the same volumes, it has boosted its margin from 15% to just over 20%.

Ni Fei, head of the consumer business, said the company expects to ship more than 100 million units in 2021 and hopes to double that again next year.

Comeback kid

ZTE was wounded in 2018 when it was forced to sack its top management tier, lost access to its suppliers and was fined $1 billion after being caught selling equipment to Iran in breach of US sanctions.

Since then it has rebuilt its business around its core network equipment unit and its Chinese carrier clients.

In its Q3 result, it posted a 1.2 billion yuan net (US$188 million) profit – up 125% over last year – on 14% higher sales of 30.4 billion yuan ($4.8 billion).

It has done well out of China's 5G rollout, where nearly 90% of contracts have gone to ZTE and Huawei. As a result, its carrier network revenues rose 30% between 2018 and 2020 and last year comprised nearly three-quarters of total sales.

Device dependent

This makes the company look dangerously dependent on a narrow range of customers.

However, ZTE executives argued at the company's recent analysts' day that after stabilizing the company in the past three years it is now in a position to chase growth through the device and enterprise segments.

Ni told Shanghai news site The Paper that ZTE aimed to grow its device business next year by more than 200% in the domestic market and more than 50% internationally.

He also signaled that like Huawei, ZTE is making a major tilt at the smart car market.

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Automotive software and hardware is one of the key focus areas of what the company is calling its "second growth curve," Ni said.

ZTE's device capability, its operating system and its self-developed chips would be the cornerstone of its strategy to become a digital infrastructure provider and partner for auto firms.

"The smart car scene is a very large field, and it is also a trillion-level [yuan] market," he said.

He said ZTE had forged relationships with major Chinese auto brands such as FAW and SAIC and had no plans to make vehicles of its own.

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— Robert Clark, contributing editor, special to Light Reading