Optical/IP Networks

ZTE Doubles Overseas Sales

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) continued its dramatic overseas growth in 2004, more than doubling its revenues from business outside China, according to annual results reported earlier today.

Under Hong Kong accounting standards, international revenues totaled 4.6 billion renminbi (US$556 million), 21.6 percent of the vendor's total revenues for the year of RMB21.2 billion ($2.55 billion). This compares with overseas revenues of RMB1.96 billion ($237 million) in 2003, which amounted to 11.5 percent of the RMB17 billion ($2.05 billion) revenues in 2003.

ZTE recorded net profits of nearly RMB1.3 billion ($157 million), up from more than RMB1 billion ($121 million) the previous year.

The revenue numbers shouldn't be confused with the value of contracts won by ZTE in 2004 (see ZTE Boasts Stellar 2004). The reported numbers also differ slightly from the financials recorded under Chinese accounting standards. ZTE is listed on the Hong Kong and Shenzhen exchanges.

Like its rival Chinese vendor Huawei Technologies Co. Ltd., ZTE is focused on boosting its international footprint, and has pledged to spend about 60 percent of the $450 million it raised from last year's Hong Kong IPO to boost overseas expansion (see ZTE Zooms on HK Debut).

The company has been expanding its physical presence in the Asia/Pacific region, and continues to win contracts there and in Africa and Latin America. (See ZTE to Open Pakistan R&D Center, ZTE Moves Into India, ZTE Wins Triple-Play Deal in India, ZTE Takes CDMA450 to Argentina, ZTE Wins Zambian Contract, ZTE Wins in Chile, and ZTE to Open Plant in Algeria.)

And ZTE has been making headway recently in Western Europe, with a series of frame contracts and partnerships. (See ZTE Boasts Global Deals, ZTE Lands FT DSL Deal, ZTE Confirms Alcatel Deal, ZTE Teams With Portugal Telecom, ZTE Lands OTE DSL Deal, and Marconi Signs Distribution Agreement.)

In technology terms, the vendor is particularly strong in the wireless infrastructure sector, where it sells networks based on both main standards, GSM and CDMA. This business accounted for 41 percent of its total revenues in 2004. In addition, revenues from wireless handsets totaled RMB6 billion ($725 million), or 28 percent of revenues, with 10 million units shipped.

But declining margins in that business led ZTE's share price to fall by HK$1.50 ($0.19), nearly 6 percent, on the Hong Kong exchange today to HK$24.30 ($3.12). For the year, handset gross margins were 12.1 percent, down from 18.1 percent in 2003, and had dropped dramatically during the year, from 21.7 percent in the first half of 2004 to just 4.7 percent in the second half.

As it happens, Huawei announced today that it plans to start making and selling wireless handsets in China (see Huawei to Produce Handsets).

— Ray Le Maistre, International News Editor, Light Reading

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