ZTE hikes full-year earnings by 19%ZTE hikes full-year earnings by 19%

Strong domestic demand and growth across all of its segments have lifted ZTE's full-year earnings by 18.6%. The Shenzhen-based vendor posted revenue of 122.95 billion Chinese yuan (US$17.9 billion), up 7.4%, and net profit of CNY8.1 billion ($1.2 billion). Its Hong Kong stock price rose 6.52% Monday on the back of the strong result.

It is the latest in a series of steadily improving numbers for China's second largest telecom equipment supplier since it was hit by heavy US penalties in 2018 over its illicit Iran trades.

Topline revenue has increased 37% since 2019, with consumer sales growing 89% and enterprise by 59%. Together the two segments have helped expand the size of the non-operator share of the business from 27% to 35%. The company contained growth in operating costs to just 4.1% and raised the gross margin to 37.2%.

Figure 1: (Source: Jordi Boixareu/Alamy Live News)

But while the product mix has become more diversified, ZTE has become more reliant on its home market. It increased domestic sales 9.2% last year compared to 3.4% offshore, with the China market now accounting for 69% of the total, up from 64% three years ago.

R&D staff now 49% of headcount

Chairman Li Zixue said 2022 was the start of ZTE's "strategic expansion phase." He said the company had achieved good growth from innovative products including server and storage, 5G industry applications, auto electronics, digital energy and smart home.

"We firmly grasped the opportunities presented by the global trend of digitalization and low-carbon green principles," he said.

The company further ramped up R&D spending. Research outlays rose 14.9%, mostly on 5G-related products, chip, server and storage businesses. R&D spending accounts for 17.6% of revenue, up from 13.8% three years ago, with the research division now totaling 49% of total headcount.

Looking ahead, Li said ZTE would seek opportunities for industrial transformation presented by new energy and digitalized industries. While the external environment would likely become more unpredictable, "the digital economy has grown into an irreversible trend."

He also said ZTE would "persist in an approach of precision and pragmatism in 2023," targeting domestic opportunities in the digital economy and seeking breakthroughs in large telco customers offshore.

"We will strengthen our corporate resilience and control operating risks to achieve prudent growth," Li said.

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— Robert Clark, Contributing Editor, special to Light Reading