ZTE Committed to Strategic Review to Deliver Turnaround in Operations

20 Jan 2013, Shenzhen, China – ZTE Corporation (“ZTE”) (H share stock code: 0763.HK / A share stock code: 000063.SZ), a publicly-listed global provider of telecommunications equipment and network solutions, expects to report a profit in the first quarter of 2013 as a result of the company’s operational review and strategic realignment efforts.

The company is steadfastly executing its comprehensive strategic review begun last year to sharpen its focus on key products and markets and strengthen cash flow management. ZTE is generating net cash inflows from operations as the company recorded higher sales collection, achieved increased profitability on new contracts, applied stringent cost controls and recognized investment gains.

Due to delays in the progress of some domestic and international network projects, the recognition of earlier lower-margin contracts and a drop in revenue for terminal products, ZTE may post a full-year net loss attributable to shareholders of the listed company of between

RMB2.5 billion and RMB2.9 billion in 2012, a reversal of 221.35% and 240.77% compared to a year earlier.

ZTE will continue to implement the company’s operational review to improve its competitiveness, efficiency and innovation capabilities to lay the groundwork for healthy growth in the future.

Committed to Optimization Measures

In the past few years, ZTE has strengthened its position in the global telecommunications market, successfully penetrating most major markets and regions, establishing business relationships with mainstream operators in the industry, and optimizing its products and services in key sectors. In the network infrastructure segment, the company has more than 100 commercial and trial LTE networks deployed globally, with an industry-leading position in dual-mode TD-LTE and FDD-LTE combined networks. ZTE has risen from the No. 9 position in 2011 to rank 4 in the global smartphone market at present, and the company’s terminal division has shifted its focus to the U.S., China, Japan and European markets from emerging countries, as the GRAND line of handsets helped us improve our branding in higher-end segments. In the enterprise networking products and services market, the company has maintained relatively fast growth. However, as ZTE sought to adapt to these changes in its business, the company did not respond to shifts in telecommunications industry and macroeconomy with sufficient speed, and we have further room to improve our internal controls.

In 2013, ZTE is committed to carrying through comprehensive reforms to deliver improvements, focusing on management, products and markets.

Firstly, ZTE will seek to identify its challenges and respond with speed. At the start of the year, the board of directors has made management-level changes based on operational performance. As the company aims to increase revenue and profit, it will strictly monitor costs by maintaining controls on the growth in employee numbers, reducing unnecessary consumption, and improve efficiency. Secondly, the company will sharpen its focus on mainstream customers and products, improving internal coordination to ensure resources are channeled into the development and innovation of key projects.

Thirdly, the company will streamline its internal organization to form simplified, three-layer structure, comprised of headquarters, operational division and representative office, thereby eliminating some regional and structural groupings. The reorganization will strengthen competitiveness and risk-management, ensuring all departments have access to key operational resources. Fourthly, the company will introduce greater management accountability, aligning compensation with performance, and improving training to increase motivation and incentives for employees.

Development strategy for 2013 and beyond

Looking ahead, the information and communications technology industry will continue to undergo revolutionary changes. We are entering into the era of Big Data as information technology merges with consumer technology. Data traffic volumes on core and access networks will increase exponentially, prompting operators to invest in higher-bandwidth networks with 4G+ and FTTx technologies. The smartphone industry will continue to blossom and there is huge room for growth in the enterprise networking market.

ZTE’s management will plan for these changes conscientiously, strengthening our strategy and execution to optimize our product and regional structures, driving greater efficiency and achieve higher profitability, to grasp the future opportunities in the industry. We want to thank our shareholders and employees for your commitment to the company, and believe we can remain united to face the challenges ahead. We also want to express our gratitude to former employees, as we pledge to safeguard and develop the work you started.