January 25, 2021
China's accelerated 5G rollout has propelled ZTE to its best result in years.
The Chinese vendor has announced a preliminary full-year profit of 4.37 billion yuan (US$674.6 million) on 11.7% higher sales of 101.4 billion yuan ($15.6 billion).
It powered home in the last quarter with a 62% spike in income to 1.66 billion yuan.
Full-year earnings fell 15.2% as a result of a one-off 2.7 billion yuan ($416 million) sale of Shenzhen property that inflated its 2019 result.
ZTE's stock on the HKSE rose 8.11% in Monday trading following release of the news.
On the up
Other numbers have improved too, with operating cash flow up 37.4%, and net gearing down 2.5 points to 69.5%, the company said.
The preliminary result doesn't break out segment or geographical numbers, but the weight of China's 5G rollout is clear.
In the first half of 2020 ZTE derived 67.3% of revenue from its domestic market. Nearly three-quarters of sales went to its carrier equipment division.
Research firm Dell'Oro has calculated that China accounted for more than 40% of the global telecom equipment market in the first three quarters of 2020.
Huawei and ZTE have dominated China's massive 5G program, snaring around 80% of all contracts, with Ericsson and small local player Datang Mobile winning the rest.
"In the domestic market, the company realized growth in both market pattern and market share as it seized opportunities arising from the development of 5G and new infrastructure," chairman Li Zixue said.
Home grown advantage
Offshore, he said the company had boosted profitability "on the back of persistent sound operations" and efforts to explore high-value market segments.
Analysis on the C114 website notes that ZTE's heavy bets in 5G are paying off.
Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.
From 2015-19 it invested 61.4 billion yuan ($9.4 billion) in the new-generation technology. In the first three quarters of last year it spent another 10.8 billion yuan, up 15% year-on-year.
In contrast to its reputation as low-cost supplier, its international business is also delivering some healthy margins.
According to ZTE's 1H interim result filing, its gross margin in Asia ex-China is 44.3%; in Africa it's a generous 54.5%. By comparison, its China business operates at a paltry 31% margin.
This numbers put it in the same league as its European rivals. Ericsson's quarterly gross margin last year ranged between 39%-43%, Nokia's at around 39%.
— Robert Clark, contributing editor, special to Light Reading
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