ZTE to post 9-month net profit of RMB 500 million – RMB 750 million; first-half profit increased 26.6% to RMB 310 million

21 August 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, forecast the company will post net profit of between RMB 500 million and RMB 750 million in the first nine months of 2013, rebounding from a loss in the same period a year earlier.

The turnaround in ZTE’s financial performance this year was achieved on the back of improved gross profit margins and stringent cost controls. In ZTE’s first-half results announcement released today, the company reported net profit attributable to shareholders of the listed company of RMB 310 million, a year-on-year increase of 26.6%. Basic earnings per share amounted to RMB 0.09. Revenue decreased 11.9% to RMB 37.58 billion.

By focusing on profitability, ZTE’s gross profit margins improved in the first half. The company also benefited from greater cost efficiency, with a significant year-on-year drop in selling, administrative and research costs, in addition to the disposal gain from the sale of a subsidiary.

In the first half of 2013, telecommunications operators globally adopted greater prudence in their infrastructure investments. ZTE focused on developing its business in major markets and deepening partnerships with mainstream global carriers to ensure the company’s products and services meet our customers’ needs. Revenue fell because of a drop in sales of GSM and UMTS products in China, and declining demand for 2G devices.

1) Results by Geography

The domestic market

ZTE reported operating revenue of RMB 18.821 billion from the domestic market in the first half, accounting for 50.1% of overall operating revenue. The company leveraged opportunities presented by the construction of 4G networks and infrastructure related to the Broadband China strategy, working closely with operators to deliver superior solutions that fulfill their needs. At the same time, ZTE focused on achieving improved profit margins in network contracts to ensure the company’s sustainable development.

The international market

ZTE reported operating revenue of RMB 18.755 billion from the international market, accounting for 49.9% of overall operating revenue. The company continued to focus on business operations in major markets and deepen relationships with mainstream global carriers, strengthening the development of strategic new products and solutions and frontiers for enhanced business competitiveness.

2) By product categories

ZTE reported operating revenue of RMB 19.050 billion for carriers’ networks, RMB 12.461 billion for terminals, and RMB 6.065 billion for telecommunications software systems, services and other products.

Carriers’ networks

ZTE committed its best resources on 4G product research and development to enhance the company’s competitiveness in wireless products, laying the foundation for ZTE to succeed in the new cycle of investment in wireless equipment. In the 2G and 3G market, the company benefited from efforts to optimize its product mix and achieved improvement in gross profit margin. The company strengthened its research and development, and increased marketing efforts for government and enterprise network product solutions.

In connection with wireline and optical communications products, the rapid development of the broadband market coupled with the construction of supporting infrastructure for the Mobile Internet were driving domestic and international carriers to invest in transmission networks to match increasing network traffic. Helped by this favourable development and on the back of superior product competitiveness, ZTE reported relatively fast growth in operating revenue from its international sales of wireline switch and access products, and increased domestic sales of optical communications products.

ZTE also focused on innovation in products for value-added telecommunications services, while continuing to expand business with mainstream global carriers with the aid of broadband multimedia products.

Terminals

Operating revenue from ZTE’s smart terminals continued to post growth, as the company deepened its strategic collaboration with mainstream global carriers, and strengthened efforts on brand building and product innovation, taking advantage of burgeoning consumer demand resulting from growth of 4G networks and the Mobile Internet. Operating revenue from terminal products decreased as a result of weaker market demand for feature phones and data cards.

Telecommunications software systems, services and other products

For the reporting period, operating revenue from the company’s telecommunications software systems, services and other products reported year-on-year decrease of 14.75%, reflecting mainly the decrease in operating revenue from service products.

Looking ahead to the remainder of 2013, the large-scale deployment of 4G networks, particularly the large-scale construction of TD-LTE networks in China, will usher in a new cycle of investment by the telecommunications industry in the wireless network sector. In connection with wireline networks, growing consumer demand for data services will support the construction of broadband networks around the world, while various national governments commit to build new network infrastructure and companies invest relevant in technology upgrades. Development opportunities will also abound for transmission networks deployed to complement the wireless and wireline networks. Smart terminals are becoming the mainstream devices, and demand is expected to sustain relatively fast growth.

Comprehensive and innovative solutions and stable long-term business relationships will be crucial as global carriers strive to deal with transitional shifts in the industry. In this regard, ZTE is well positioned, thanks to the development of globally competitive solutions and the company’s deepening business partnerships with mainstream global carriers.

In the remainder of 2013, ZTE will continue to carry out product innovation and solution operations to strengthen in key products. We will further strive for improvement in R&D efficiency, and maintain our focus on populous nations and mainstream carriers. The company will vigorously develop our business in the government and enterprise services sectors. ZTE will continue to exercise control on resource and cost management, and improve operational efficiency through persistent implementation of the operations settlement system.