ZTE defies capex slump with higher Q1 earnings, revenue

ZTE's strong domestic business fortifies bottom line in Q1 as global telco spending wilts.

Robert Clark, Contributing Editor, Special to Light Reading

April 26, 2024

2 Min Read
ZTE exhibition area at a trade show
(Source: Cynthia Lee/Alamy Stock Photo)

China's smaller comms vendor, ZTE, seems to be so far weathering the great capex slump.

It has reported 3.7% higher Q1 earnings of 2.7 billion Chinese yuan (US$380 million), with sales up 5% to RMB30.6 billion ($4.2 billion).

That's in contrast to its European rivals, who have been exposed by the worldwide 5G wind-down. Nokia lost a fifth of its revenue in Q1; Ericsson reported a 14% slide, with network sales off by 19%.

ZTE's local rival Huawei is doing better than all of them, more than doubling full-year net income, but it is increasingly looking less like a network kit supplier than a broad ICT player, offering everything from cloud to smartphones.

Of course, both ZTE and Huawei enjoy the benefit of the inside running in the world's biggest equipment market, guaranteed at least 80% of network spend by China's state-owned giants.

ZTE didn't break out its segment figures for Q1, but its 2023 full-year filing showed it remains heavily reliant on its home market, which contributed just under 70% of total revenue.

R&D up 7%

The positive news from the first quarter is that it enjoyed some topline sales growth – again, in contrast to its foreign rivals. 

But it's not clear whether this came from its network business, which usually represents around two-thirds of total sales, or its device or enterprise segments.

Like other Chinese tech firms, it continues to ramp up R&D, hiking spending by 7.4% to RMB6.4 billion ($883.2 million) in the quarter. Last year it spent RMB25.3 billion ($3.5 billion) on research, a 17% increase over 2022.

ZTE's Q1 result was also aided by a 65% drop in finance charges, which shaved RMB118 million ($16.3 million) off expenses, and an extra RMB349 million ($48.2 million) from gains in the VAT credit policy.

Its challenge now will be to maintain this growth as telcos shy away from investment. It will continue to be buttressed by Chinese operator spending, even as they shift their budgets from 5G to cloud and AI.

But it will also feel the impact of the worldwide capex retreat. Total spending fell for the first time in six years in 2023 and is likely to continue to decline, according to research firm Dell'Oro. It projects capex to fall “at a mid-single-digit rate” this year and at a CAGR of -2% to -3% between now and 2026.

ZTE's stock, which has dropped 30% in the past year, closed 6.3% higher on the Hong Kong exchange Friday.

Read more about:


About the Author(s)

Robert Clark

Contributing Editor, Special to Light Reading

Robert Clark is an independent technology editor and researcher based in Hong Kong. In addition to contributing to Light Reading, he also has his own blog,  Electric Speech (http://www.electricspeech.com). 

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like