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3G/HSPA

ZTE Grows 36% in 2009

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) recorded a healthy 36 percent increase in its annual revenues to 60.3 billion Yuan Renminbi (US$8.82 billion), and a 48 percent leap in net income to RMB2.46 billion ($360 million), in 2009 on the back of large 3G equipment orders from China's major carriers. (See ZTE Reports 2009.)

The vendor's domestic sales grew a massive 74 percent to RMB30.4 billion ($4.45 billion), with sales of TD-SCDMA and CDMA mobile infrastructure, and PON-based fixed access infrastructure, generating "strong sales," the vendor noted.

The rollout of 3G and fixed access broadband networks, and the accompanying transport infrastructure, in China boosted ZTE's domestic revenues, as China Mobile Ltd. (NYSE: CHL), China Telecom Corp. Ltd. (NYSE: CHA), and China Unicom Ltd. (NYSE: CHU) among them invested RMB372.5 billion ($54.6 billion) in their networks, including RMB160.9 billion ($23.6 billion) on 3G alone, with ZTE claiming to be the leading supplier of 3G gear in China last year. (See Unicom Deploys ZTE's Green 3G and ZTE Rides High on Chinese 3G.)

Of course, ZTE wasn't the only domestic vendor to benefit from China's 3G splurge last year. (See Huawei Doubles Profits in 2009.)

The Chinese firm also grew its international sales by 11.3 percent to RMB29.9 billion ($4.38 billion), nearly half of total revenues. ZTE noted it had experienced significant growth in Europe and the US, asserting that it expects further growth in those markets. The vendor cited deals with Hong Kong CSL Ltd. in Hong Kong, KPN Telecom NV (NYSE: KPN) in Belgium and Germany, and Norwegian carrier Telenor Group (Nasdaq: TELN) as key international successes. (See ZTE Scores Euro 3G Deal With KPN, CSL Touts LTE Developments, and ZTE Wins Telenor Deal.)

European and North American markets accounted for about a third of ZTE's overseas sales. Asia/Pacific (excluding China) generated RMB13.2 billion ($1.9 billion) in revenues, while Africa accounted for RMB6.9 billion ($1 billion). "Other" markets, including Europe and the Americas, generated 2009 revenues of RMB9.8 billion ($1.44 billion), though the vendor is pushing hard to increase this. (See ZTE Does R&D in Germany, ZTE Snares Euro SDR Deal, ZTE Bears Finland, Commnet Trials LTE With ZTE, ZTE Aims for Euro Smartphones, and Clearwire Takes WiMax to Spain.)

In 2008, international revenues had accounted for 61 percent of ZTE's total sales, but unusually strong sales in China during 2009 evened up the ratio between overseas and domestic revenues. (See ZTE Ramps 2008 Revenues.)

In terms of product mix, network infrastructure accounted for RMB40 billion ($5.86 billion) in revenues, while "terminals" (handsets and mobile devices) generated sales of RMB13 billion ($1.9 billion). Software, services, and other products accounted for RMB7.2 billion ($1.05 billion).

Increasing competition in the carrier infrastructure market was cited as the main reason for ZTE's overall decline in gross margin to 30.9 percent, from 32.5 percent in 2008.

The vendor's chairman, Hou Weigui, noted in his prepared remarks that ZTE will "pursue internationalization in greater depth, laying solid foundations for our growth into a top-rate world-class enterprise."

Reading behind the lines, it seems he wants to really push on with the development of new overseas business, because there's every chance ZTE's domestic revenues will struggle to maintain 2009's level now that the Chinese carriers are tempering their network investment plans, with China Unicom alone planning to cut its 2010 capex by nearly 35 percent to RMB73.5 billion ($10.8 billion). (See China Mobile Crunches Its Capex and Competition Squeezes China Telecom's ARPU.)

That gives the vendor's new president, Shi Lirong, a difficult task, as he will need to figure out how ZTE can make 2010 another year of growth. (See ZTE Names New President.)

Lirong, who was previously in charge of ZTE's sales and business development team, is due to outline his strategy tomorrow, April 9. It's almost certain to include a further push into next-generation mobile, where ZTE has made inroads in China and overseas. (See ZTE, China Mobile Test TD-LTE, Qualcomm, ZTE Do CDMA2000 Femtos, ZTE Launches EV-DO Rev.B Phase II , and MWC 2010: The LTE G8.)

— Ray Le Maistre, International Managing Editor, Light Reading

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