Handsets, Services Boost ZTE's Q1

After a blowout 2009 that saw its revenues ramp by 36 percent, ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) is still managing to increase its sales in 2010, though not at the same manic rate. (See ZTE Grows 36% in 2009.)

And following a great year for its network infrastructure division, driven by the 3G rollouts in China, it's the vendor's handset, enterprise networks, and services lines of business that are fueling its continued growth so far in 2010.

ZTE generated revenues of 13.26 billion Yuan Renminbi (US$1.94 billion) during the first three months of 2010, a 13.6 percent increase over the same period a year ago. And its net profit of RMB109.8 million ($16.1 million) is a near 40 percent improvement year-on-year, though it's still an extremely low profit margin (just 0.8 percent). (See ZTE Reports Q1.)

The vendor noted in its filing with the Hong Kong stock exchange that, while its Carrier Networks division recorded only slight growth of 0.9 percent compared with 2009, first-quarter revenues at the Terminals division was up by nearly 42 percent, driven mostly by 3G handset sales.

In addition, revenues at ZTE's Software Systems, Services, and Other division grew by nearly 41 percent, driven mainly by growing sales of "enterprise network products and servicing products."

Geographically, sales in China, where ZTE has just announced a major IP Multimedia Subsystem (IMS) deal, were "stable," with the carriers focusing their capex on mobile and transport network expansion. (See ZTE to Build China Mobile's IMS Core.)

In its overseas markets, where the Chinese vendor is keen to make a greater impact, ZTE noticed that the "impact of the financial crisis was waning," and that it benefited from "strong investments in equipment in emerging markets."

That view of the emerging markets is counter to Ericsson AB (Nasdaq: ERIC)'s experience: The Swedish giant noted during its first-quarter commentary that it was seeing little in the way of recovery in developing markets. (See Carrier Caution Cuffs Ericsson in Q1.)

— Ray Le Maistre, International Managing Editor, Light Reading