ZTE Gains Ground on Ericsson, Nokia in H1

Chinese equipment vendor ZTE has made further gains on larger Western rivals Ericsson and Nokia, reporting growth in sales and profits in the first half of the year thanks largely to the expansion of 4G networks in China.

Operating revenues rose by 4.1% in the first six months, to 47.8 billion Chinese yuan ($7.2 billion), compared with the year-earlier period, while net profit was up 9.3%, to around RMB1.8 billion ($270 million).

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) is dwarfed by domestic rival Huawei Technologies Co. Ltd. , which last year overtook Sweden's Ericsson AB (Nasdaq: ERIC) to become the world's largest supplier to communications service providers (CSPs), but it has also managed to report growth while its bigger Western competitors have been struggling. (See Huawei: New King of the CSP Market.)

ZTE's rate of revenue growth pales in comparison with the 40% year-on-year increase that Huawei has already reported for the first six months, but it matches up favorably with a 7% revenue decline at Ericsson and one of 10% at Nokia Corp. (NYSE: NOK), in local currency units. (See Huawei Reports 40% H1 Sales Growth But Margins Suffer and Ericsson 'Doubles' Savings Goal as Sales Slump.)

Unlike Ericsson and Nokia, which are heavily focused on the sale of networks and services to CSPs, the Chinese companies maintain large and growing devices businesses, making direct comparisons with their European counterparts awkward.

Even so, their CSP divisions have been driving much of their growth.

ZTE reported a 5.1% year-on-year increase in sales at its "carriers' networks" division, to RMB28.7 billion ($4.3 billion). Revenues from the comparatively small "government and corporate business" rose 2.5%, to RMB4.6 billion ($690 million), while those from the devices business were up 2.6%, to RMB14.4 billion ($2.2 billion).

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Last year, Huawei trumpeted a 21% increase in sales to communications services providers, to about $36 billion.

Besides the ongoing rollout of 4G networks in China, ZTE attributed its growth to the rising take-up of cloud-computing and big data services, as well as interest in video and Internet of Things services.

Nevertheless, the company drew attention to "increasing pressure in operations" during the first half of 2016 due to a decline in traditional activities.

Hoping to better position itself for growth in future, ZTE today announced a new five-year strategy called M-ICT 2.0 based around the five key trends of "virtuality, openness, intelligence, cloudification and the Internet of Everything" -- handily contrived to produce the acronym VOICE.

For more on that strategy, see this report from the team at Telecoms.com.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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