Rich potential in wireless, wireline and enterprise markets make ZTE well-positioned in 2013

27 March 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, network solutions and mobile devices, reported positive cash flow from operations in its 2012 annual results announcement, as the company exercised effective cost controls and secured new network contracts that offer higher profit margins.

In 2012, ZTE executed its strategy to penetrate major countries and consolidate business relationships with mainstream international telecommunications operators, and expanded in newer operations such as enterprise networks and managed services. Due to delays in some network contracts and lower sales of feature handsets, the company recorded a decline in revenue in 2012. The company also recognized income from some lower-margin contracts in Africa, South America and China in 2012, which resulted in a drop in gross profit margin.

ZTE sharpened its focus on key products and markets, and maintained measures to control costs. The company achieved higher profit margins in new network contracts, and strengthened efforts to improve cash flow management.

Annual revenue fell 2.4% to RMB 84.2 billion in 2012. In China, revenue of RMB 39.6 billion was stable compared to a year earlier, accounting for 47% of the company’s total. Overseas revenue dropped 4.5% to RMB 44.7 billion, representing 53% of the company’s total The company recorded a net loss attributable to shareholders of listed company of RMB 2.84 billion. ZTE posted positive operating cash flow of RMB 1.87 billion. In 2012, ZTE recorded positive free cash flow for the first time in three years.

In 2012, ZTE saw an improvement in its business mix. Combined revenue for Europe and the Americas increased 1.6% from a year earlier, after strong growth in sales in the United States market. In the Asia Pacific market, revenue increased 2.8%. In the network infrastructure division, the company shifted towards higher-margin business. In the terminals division, the mix shifted towards smart devices.

In the network infrastructure division, ZTE posted revenue of RMB 41.6 billion. In the terminals division, revenue of RMB 25.84 billion was in line with the company’s target. ZTE recorded revenue of RMB 16.8 billion from sales of software, services and other products.

Faced with pressures in operations in 2012, ZTE remained committed to technology innovation, increasing spending on research and development by 4% to RMB 8.83 billion. ZTE ranked first in international patent applications by the World Intellectual Property Organization in each of the past two years, and was the first Chinese company to reach the Top-10 in patent applications to the European Patent Office. In TD-LTE/LTE-FDD, 100G and high-performance smartphones, ZTE’s technology capabilities have gained wide recognition from customers globally.

In wireless products, ZTE’s innovations in FDD-LTE solutions helped the company cement its partnerships with the world’s leading operators. In TD-LTE, ZTE consolidated its industry leadership, with deployments in India, the Middle East and Japan. In the wireline and optical network equipment segment, the company leveraged new technology development to maintain business growth, leveraging the opportunities in the rapid development of broadband and mobile internet internationally. In the terminals division, ZTE continued to record strong growth in sales of smart devices, as the company delivered competitive products, and diversified its distribution channels.

In 2013, the rapid growth in mobile internet is driving investments in the optimization of 3G networks, and the deployment of 4G networks. In wireline, government support for bandwidth expansion in many countries will drive investment in broadband infrastructure. The dramatic increase in wireless and wireline data traffic offers opportunities for growth in transmission networks. Global market demand for smart devices will continue to grow strongly, as more users access the mobile internet to look for richer content and applications. To serve the changing needs of major telecommunications operators, it is key for providers to offer integrated solutions to maintain long-term partnerships. The competitiveness of ZTE’s products will allow the company to deepen our relationship with customers globally.

The company is strongly committed to technology innovation to deliver the best products and solutions. Our product strategy will remain focused, and we will strive to improve efficiencies in our research and development efforts. The company will leverage on our existing strengths, and actively develop our enterprise and government ICT solutions operations. ZTE is well-positioned to grasp the exciting opportunities in the industry as the company maintains controls on costs and improve efficiency to achieve greater competitiveness.