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ZTE Profits Rise on China's 4G Boom

Iain Morris
8/26/2015

China's ZTE claims to have boosted profits over the first half of the year thanks to strong sales of 4G network equipment at home and abroad.

Like bigger rival Huawei Technologies Co. Ltd. , ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) appears to have been helped by a sharp increase in spending on 4G networks by China's three national operators and continues to win 4G deals in other emerging markets.

The vendor saw net income increase by 43.2%, to 1.62 billion Chinese yuan ($250 million), compared with the first six months of 2014, while revenues grew by 21.8%, to RMB45.9 billion ($7.15 billion), over the same period.

Besides Huawei, ZTE has been the main beneficiary of the current round of investment in 4G networks in China, with China Mobile Ltd. (NYSE: CHL), China Unicom Ltd. (NYSE: CHU) and China Telecom Corp. Ltd. (NYSE: CHA) locked in a fierce battle for customers. (See China Unicom Loses Out to Rivals, China Mobile Profit Dips on 4G Costs, Tax and China Telecom Hit by Taxes as 4G Subs Soar.)

Having enjoyed a major head start over its rivals on the rollout of 4G services, China Mobile has come under greater pressure since China Unicom and China Telecom received licenses to operate the FDD version of LTE earlier this year.

In a statement, ZTE said its innovations in both FDD and TDD -- the technology favored by China Mobile -- had also allowed it to strengthen partnerships with operators outside China, including Spain's Telefónica , Africa's MTN Group Ltd. and India's Bharti Airtel Ltd. (Mumbai: BHARTIARTL).

ZTE's earnings update comes several weeks after Huawei said its own sales had risen at a year-on-year rate of 30%, to RMB175.9 billion ($27.4 billion, at current exchange rates), in the first six months of the year -- beating a target of 20% growth. (See Huawei's H1 Sales Grow 30% to $28.3B.)

Both players are still putting Western rivals like Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC) and Nokia Corp. (NYSE: NOK) to considerable shame, despite recent improvements.

Thanks to favorable foreign currency movements, Alcatel-Lucent was able to report a 7% increase in revenues in the first half, to about €6.7 billion ($7.6 billion), while Ericsson's were up by 11.5%, to SEK114.2 billion ($13.5 billion). (See AlcaLu Grows Profits Ahead of Nokia Deal and Ericsson's Stock Rises on Q2 Margin Improvements.)

But Nokia turned in the strongest performance of all three, flagging a 14% increase in sales, to €6.4 billion ($7.3 billion), and standing out as the only Western player to register growth on a constant currency basis. (See Nokia Networks Enjoys 'Terrific Rebound'.)

All three companies have secured a chunk of the 4G contracts being handed out in China but appear to have missed out of the very biggest deals.

They have also been hit by a relatively weak spending environment in North America, where operators have cut back on network investments this year.

Direct comparisons between the world's biggest equipment makers are complicated by the fact that all three Western companies have sold off their device businesses so they can better focus on the sale of network equipment.

At the same time, Nokia is in the process of acquiring Alcatel-Lucent in a €15.6 billion ($17.8 billion) deal it hopes will give it the wherewithal to challenge Huawei in the future. (See Nokia Makes €15.6B Bid for Alcatel-Lucent.)


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Shedding more light on its latest earnings, ZTE revealed that revenues from its carrier networks business rose by more than 30%, to RMB28.51 billion ($4.4 billion), compared with the same period last year.

The company's software and services unit also looks to have performed strongly, growing revenues by 36.11%, to RMB7.43 billion ($1.2 billion), over the same period.

As well as boosting sales of video systems and network terminal products, ZTE made progress in the telecom services business in the markets of Germany, Belgium, Luxembourg, Spain and Colombia.

The newer mobile devices division reported revenues of RMB9.96 billion ($1.6 billion), claiming to have seen growth in the Asia Pacific, Latin America, Europe, the Middle East and Africa.

According to a report from Reuters, analyst firm Jefferies reckons ZTE shipped about 26 million smartphones over the first six months of the year against a 2015 target of 60 million.

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

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kq4ym
kq4ym
9/9/2015 | 8:16:33 PM
Re: Smartphones
It would seem only natrual that they would capture a big part of the Chinese market since it's so huge to begin with. And conversely that the out of country firms would be a secondary force. But as noted there's still billions of folks they can capture as customers around the world too.
danielcawrey
danielcawrey
8/28/2015 | 11:06:44 AM
Smartphones
While ZTE isn't a big player in the US market, there are a lot of places where cheaper smartphones are needed. This is why I think in the long term the company will do well worldwide. Think about South America, India and Africa. These are places where I think ZTE can do well, including China. 
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