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ZTE Rides High on Chinese 3G

Michelle Donegan
News Analysis
Michelle Donegan
10/28/2009

After reporting stellar third-quarter results that were largely due to 3G network rollouts in China, ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) plans to put extra effort into taking bigger slices of other markets. (See ZTE Reports Q3.)

For the rest of this year, the Chinese vendor says it will "seek to increase our presence in key markets such as Western Europe and North America while reinforcing our position in the 3G market at home."

That's the plan. And the vendor believes it now has more of a competitive edge outside China thanks to its "cost advantage, financing resources, and ability to customize." ZTE also points out that the "changing competitive environment also provided opportunities for breakthroughs in key markets and products."

Of course, ZTE has been talking up this international push since early this year. The vendor has set up a dedicated business unit to house activities in the European and North American markets and has lines of credit totaling $25 billion to fund international expansion. (See ZTE Readies Fresh Assault on Europe, US, ZTE Unveils New 'Western' Division, ZTE Bags Another $10B in Credit, and Time's a Healer for ZTE.)

ZTE is drawing its international battle plans from a position of strength. Third-quarter operating income was up 42.81 percent to 15.1 billion Yuan Renminbi (US$2.2 billion) compared with the same period last year, and net profit was up 58 percent to RMB409 million ($60 million) compared with the year-ago quarter.

Those numbers are quite a financial feat for a telecom equipment supplier in the current economic climate and most certainly make competitors Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and Nokia Networks green with envy (if not red with fury). (See Pressure Tells on Ericsson's Q3 and No Sign of Recovery for Nokia Siemens.)

ZTE says much of its growth comes from the large-scale deployments of 3G networks by all three operators in China -- China Mobile Communications Corp. , China Telecom Corp. Ltd. (NYSE: CHA), and China Unicom Ltd. (NYSE: CHU). ZTE and rival Huawei Technologies Co. Ltd. have taken the lion's share of 3G equipment contracts in the country, according to IHS iSuppli (See China: 1 Billion Lines Served , China 3G Update: App Stores & iPhones, and Mobile Market Moves ZTE.)

Revenues in ZTE's carrier networks division were up 47 percent, driven mostly by sales of 3G network equipment, optical transmission, and data communications products, according to the company.

— Michelle Donegan, European Editor, Unstrung

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