ZTE Suffers Sales Slip in First Half

It's not just Nokia Siemens Networks that's suffering from a revenues slide while improving its margins: The same thing has happened to ZTE Corp. during the first half of 2013. (See NSN: The Recovery Looks Real.)

The Chinese vendor focused on its year-on-year profit gains when unveiling its preliminary first-half numbers Monday -- its net income was 23.5 percent better than a year ago at 302 million Yuan Renminbi (US$49.2 million).

But revenues for the first six months of 2013 are down by 11.6 percent year-on-year to RMB 37.7 billion ($6.14 billion), due to a slump in demand for 2G and 3G network gear in China and lower demand for 2G devices. In addition, exchange rate changes have negatively impacted the company's international revenues.

And while ZTE says its gross margins improved (by an unspecified amount), it still suffered an operating loss of RMB 830.8 million ($135 million).

ZTE has never reported high levels of profitability but was consistently in the black until 2012, when it initiated a cost-cutting program as soon as its margins started to suffer. (See ZTE Reports Losses, Plans Closures.)

That focus on cost-cutting prevails, with ZTE noting that its "sales, administrative and research and development expenses declined significantly" during the first half of this year.

That doesn't mean the company is sitting on its hands. It continues to push hard for international deals and has been investing in all manner of 4G capabilities. (See ZTE Unveils World-First 100MHz Radio Remote Unit for LTE-Advanced Networks, ZTE, Marvell Break New VoLTE Ground, ZTE Cloud Radio Solution to Usher in New Era of High-Performance LTE Networks and Euronews: ZTE to Run E-Plus Network.)

In addition, ZTE is likely to benefit in the next few years from a new wave of mobile infrastructure pending by the three main operators in China as they introduce 4G, though it's clear that ZTE and local rival Huawei Technologies Co. Ltd. are not going to get everything their own way. (See NSN Gets Aggressive in China.)

-- Ray Le Maistre, Editor-in-Chief, Light Reading
pdonegan66 7/23/2013 | 9:06:45 AM
re: ZTE Suffers Sales Slip in First Half I can't see it myself. Huawei is the clear leader out of the two. Acquiring ZTE would just cause Huawei a tremendous amount of pain. Meantime, a lot of the gain that there is to be gotten (market share, R&D engineers) can be derived a lot more easily by Huawei growing organically over time. I would think the preferred choice in a consolidation scenario would be to seek a foreign partner of some kind for ZTE and leave Huawei well alone.
Ray Le Maistre 7/23/2013 | 8:39:57 AM
re: ZTE Suffers Sales Slip in First Half "Is there a place for an "also ran" company in this market?"

Not for much longer, I'd suggest. maybe ZTE and Huawei will merge and that will be Huawei's reverse listing :-)

Seriously, though, the consolidation clearly isn't over yet -- it's just a matter of which companies actually manage to survive. There might yet be some strange combinations.
MordyK 7/22/2013 | 7:02:06 PM
re: ZTE Suffers Sales Slip in First Half Is there a place for an "also ran" company in this market? The Darwinian process behind the dwindling carrier infrastructure players makes me think that unless there's a big shift in ZTE's direction from Huawei they are likely to go the way of Nortel.
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