ZTE Says It's Back in the Black

Ray Le Maistre
3/27/2019
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Following a year in which it nearly went out of business after its supply line to the US components market was cut off, Chinese vendor ZTE says it has reversed its fortunes and is expecting to report a first-quarter net profit of at least 800 million Chinese yuan (US$119 million).

The announcement came as ZTE reported its full year 2018 results, which the vendor used as a launch pad to highlight its 5G progress and R&D efforts.

The company reported full year 2018 revenues of RMB 85.5 billion ($12.7 billion), down a whopping 21.4% year-on-year, and an expected net loss of almost RMB 7 billion ($1 billion), compared with a net profit of RMB 4.55 billion in 2017.

That 2018 dip in sales and net loss is the result of ZTE being banned for about two months from acquiring US technology components after violating sanctions against Iran and North Korea, a move that was almost fatal to the company. The ban was reversed months later after an intervention by US President Donald Trump, who perhaps realized the impact the ban would have on US jobs: Instead, ZTE was landed with a $1 billion penalty and made to promise it would revamp its management team.

Now, it seems, ZTE is back in the telecoms saddle and turning a profit, though the vendor hasn't hinted at a range for its first-quarter revenues: Its net profit is expected to be in the range RMB0.8-1.2 billion ($119-178 million).

And while it is currently on the road to recovery, its future is still somewhat uncertain, given the current global political climate, the US efforts to persuade the rest of the world not to deploy Chinese technology and the potential for further sanction-busting activities to be revealed.

In the meantime, ZTE is aiming to keep a seat at the communications networking technology supply table it does, after all, generate a lot of sales and have hundreds of customers worldwide. And in a market fortified with the 5G equivalent of testosterone, ZTE is keen to show it can pump network infrastructure iron (and software too, of course). It says it invested 12.8% of its revenues in research and development in 2018 and, just like it did last year, says it "intensified its 5G R&D investment." Furthermore, ZTE claims to be collaborating with "30 global operators in 5G, with the shipment of Massive MIMO base station reaching 10,000 and more than 400 NFV commercial and PoC cases worldwide." For more details on how the company says it is spending its cash, see its full press release.

The natural comparison to make, of course, is with its fellow Chinese vendor and bitter rival Huawei Technologies, which, of course, is having a testing time of its own currently. It reported unaudited 2018 revenues of $108.5 billion, up by 21%, and pledged to spend $800 million on 5G-related R&D investments alone last year.

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Ray Le Maistre, Editor-in-Chief, Light Reading

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