ZTE Makes International Headway

Chinese equipment vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) announced its first-half results today, posting only a slight increase in revenues and a decrease in profits. But the company more than doubled its overseas sales and predicts an even stronger second half for its international operations.

In the first six months of this year, ZTE recorded revenues of 10.3 billion renminbi (US$1.27 billion), compared with RMB10.2 billion ($1.26 billion) a year earlier, according to a filing with the Hong Kong Stock Exchange. Net profit was RMB660 million ($81.5 million), down 8.8 percent from RMB724 million ($89.4 million) in the first six months of 2004.

The drop in profit was due to higher operating costs of RMB3.2 billion ($395 million) compared with RMB3 billion ($370 million), with R&D outlay rising by RMB100 million ($12.3 million) to RMB1.14 billion ($141 million), about 11 percent of revenues.

International revenues increased by 130 percent compared with a year earlier, accounting for 30.5 percent of revenues, or RMB3.14 billion ($388 million), according to a ZTE spokesperson.

The vendor, which aims to derive 40 percent of revenues from international sales in 2006, expects its overseas business to grow further in the second half of this year (see ZTE: Set for Overseas Explosion).

"With a well-developed overseas marketing regime, [ZTE] will be able to optimize its resource allocation and fully leverage its marketing strategies. As such, we expect strong growth to continue in our international operations in the latter half of the year," stated chairman Hou Weigui in a comment emailed to Light Reading.

Like its Chinese rival, Huawei Technologies Co. Ltd., ZTE is spending a lot of time and effort expanding its international presence and has been making headway with major European operators as well as carriers in developing markets. The firm pledges to use 60 percent of the money raised from its Hong Kong listing to boost overseas sales. (See ZTE Zooms on HK Debut, ZTE Lands FT DSL Deal, ZTE Teams With Portugal Telecom, Huawei Plans to Triple Euro Business, ZTE Gives Indian Carrier Some Credit, and ZTE Wins Greek DSLAM Contract.)

According to a recent Light Reading Insider report, ZTE aims to generate more than half its total revenues from overseas sales by 2008 without having to make any significant acquisitions (see Insider Analyzes China's Big Three).

The report notes that ZTE is "likely to continue expanding its sales of wireless infrastructure and handsets in developing countries," and that "increasing its penetration in Western markets is likely to require further and more extensive alliances with Western vendors."

ZTE already has an OEM deal with Alcatel (NYSE: ALA; Paris: CGEP:PA) and is developing wireless systems for the Chinese market with Ericsson AB (Nasdaq: ERICY). (See ZTE Confirms Alcatel Deal and Ericsson Bets on Chinese 3G.)

ZTE's first-half results were released after the Hong Kong market closed. ZTE's share price ended the day at HK$22.55 (US$2.90), down less than 1 percent.

— Ray Le Maistre, International News Editor, Light Reading

The report, China's Big Three Take On the World, is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,350. Individual reports are available for $900. For more information, or to subscribe, please visit: www.lightreading.com/insider.

digits 12/5/2012 | 3:04:48 AM
re: ZTE Makes International Headway Like Huawei, ZTE believes there are opportunities to win business away from the traditional suppliers at Europe's major carriers, and it's had some success, though limited to date.
Can ZTE match Huawei's success at BT and become a principal supplier of access and wireless gear on a substantial basis in Western Europe? Or should it stick to emerging markets such as eastern Europe, Africa and Latin America for its international growth?
Let's hear your thoughts...
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