9-month net profit to grow between 208.2% and 244.5% to between RMB 1.7 billion and RMB 1.9 billion; ZTE reported first-half profit grew 263.9% to RMB 1.13 billion

20 August 2014, 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 that net profit will more than triple in the first nine months as the strong momentum in the company’s 4G LTE business is sustained.

Net profit attributable to shareholders of the listed company will be between RMB 1.7 billion and RMB 1.9 billion in the first nine months, an increase of between 208.2% to 244.5% from a year earlier, according to guidance released by the company today. ZTE also reported today that first-half net profit increased 263.9% to RMB 1.13 billion. Six-month basic earnings per share was RMB 0.33, while revenue increased to RMB 37.7 billion.

Please download infographic for pictorial view of ZTE’s business performance in the first half:

http://www.zte.com.cn/cn/temp/file/201408/W020140820659130894725.jpg

The latest forecast by ZTE reflected strength in revenue from network contracts and ongoing improvements to contract profitability in the first nine months, supported by continued investments by customers in 4G networks in China. The company expects to post a year-on-year increase in revenue in the first nine months, as ZTE reaps returns on its investment in the development of key strategic products such as network routers and chipsets. The company also expects gains from more effective foreign exchange management.

During the first half of 2014, ZTE reported rapid growth in operating revenue from carriers’ networks in China as the company played a leading role in supporting massive constructions of 4G networks. Gross profit margin improved substantially as the company adhered to its strategy to focus on servicing network contracts with higher profitability. ZTE posted positive operating cash flow in the first six months, for the first time in the past ten years. Operating revenue from handset terminals in the domestic market fell in the first six months.

Geographical Distribution

In the first six months, ZTE reported operating revenue of RMB 19.26 billion from the domestic market, accounting for 51.1% of the Group’s overall operating revenue. Leveraging opportunities presented by the large-scale deployment of 4G networks, the Group committed to efforts to develop business in emerging new sectors such as the Mobile Internet and Cloud Computing under its M-ICT Strategy. Innovative solutions were launched with enhanced in-house capabilities, while strategic cooperation with carriers was conducted in a practical manner to maintain the Group’s dominant position and increase its market shares, laying the foundations for sustainable long-term development.

ZTE reported operating revenue of RMB 18.44 billion from the international market, accounting for 48.9% of the Group’s overall operating revenue. In adherence to the strategy of focusing on major populous nations and mainstream global carriers, the Group further optimized its market profile to achieve stable operations and quality growth.

Distribution by Products

In the first six months, the Group reported operating revenue of RMB21.84 billion for carriers’ networks. Operating revenue for handset terminals amounted to RMB10.41 billion. Operating revenue for telecommunications software systems, services and other products amounted to RMB5.46 billion.

In connection with wireless products, ongoing innovation and enhancement in product competitiveness provided the driving force behind growth. For example, the Group’s innovative Cloud Radio solution has boosted sales of 4G products in the domestic and international markets, especially in China, where the Group continued to assume a leading position in 4G product tenders, with effective growth in market shares. In the traditional 2G/3G markets, stable growth was achieved as the Group continued to optimize its market profile. In anticipation of future developments in wireless communications, the Group issued a white paper on 5G technologies and designated the development of 5G technologies as a strategic project.

In connection with wireline and optical communications products, the Group maintained its technological edge and ability to innovate products in close tandem with the development trend of the broadband market. In connection with Cloud Computing and ICT products, the Group also made significant breakthroughs in Cloud Computing / Big Data products and data center products.

ZTE Mobile Devices was established as a standalone operation in the group, focused on the shift to a more consumer-oriented and internet-driven approach. Resources are mainly committed to the creation of premium handsets, applications and software in a bid to enhance the Group’s product competitiveness and users’ experience. During the first half of 2014, the Group launched a variety of premium handset models targeted at different consumer groups. The Group’s brand recognition among consumers has been improved following vigorous efforts to develop new sales channels such as e-commerce platforms.

Technology innovations

Creating value for customers has always represented a core principle of the Group. We are committed to value creation for and mutual development with our customers through innovations in technologies and products, on the basis of a profound understanding of customers’ requirements and expectations. At the beginning of 2014, the Group announced the M-ICT strategy, with the aim of becoming an enabler in the M-ICT era that facilitates the creation of value through information and shifts from a customer-focus to an user-focus. In terms of product strategy, the Group was mainly focused on broadband-based 4G products, including wireless, wireline, terminal and broadband businesses. Government and corporate networks and services, a sector holding out enormous market potential, also became one of our focuses for development. In addition, we have also established the “CGO Laboratory” as an engine and incubator for future innovations to develop new businesses and sectors.

The Group maintains an annual R&D budget equivalent to approximately 10% of its sales revenue. The Group has established 18 R&D centers in China, the United States, Sweden, France and other regions, as well as more than 10 joint innovation centers in association with leading carriers to ensure success in the market through better assessment of market demand and customers’ experience.

As at 30 June 2014, the Group held patent assets of over 53,000 items, including granted patents of over 17,000 items and PCT international patent applications for over 15,000 items. With memberships at more than 70 international standardization organizations and forums, convenorships and presenter roles at major international standardization organizations taken up by more than 30 experts from the Group, the presentation of over 28,000 research papers in aggregate and editorships and authorships for more than 200 international standards, the Group continued to foster its leading edge in technologies and patents for key products and technologies, ensuring ongoing enhancement in its ability to counter patent risks.

In the first six months of 2014, the Group undertook leading roles in the R&D and industrialization of more than 10 projects including the National 863 Project, Electronic Development Foundation, Cloud Computing Project, North Star Project and Guangdong Technology Programme.

Outlook

Looking to the second half of 2014, opportunities as well as challenges will abound in the traditional telecommunications industry, as traditional telecommunications sectors and emerging internet sectors continue to evolve with innovative forces rapidly overhauling traditional enterprises and business models. In connection with carriers’ networks, the telecommunication industry will welcome a new investment cycle with large-scale deployment of 4G networks around the world, especially the issue of 4G licenses in China and the approval of the trial operation of TD-LTE/LTE FDD hybrid networking. However, carriers must address the issue of “dumb pipe” or “dumb information” as they become fully engaged in 4G operations, and business opportunities will abound for those who are able to create value out of information. In the government and corporate service sectors, the in-depth amalgamation of the Mobile Internet and traditional industries, the information revolution triggered by emerging technologies such as the Internet of Things, Cloud Computing and Big Data, as well as the increasingly heightened issue of information security will also present market opportunities. In connection with handset terminals, the next-generation smart terminals will be more intelligent and flexible with more integrated features. There is a trend to develop the smart terminal into a wearable device, as innovation and the fulfillment of consumers’ needs becomes a crucial factor.

To address the opportunities and challenges described above, the Group will strategically integrate and focus its resources during the second half of 2014 in adherence to its core business principle of “Innovation and Intensification.” We will continue to focus on carriers’ network products and strengthen the vertical integration of our public sector and enterprise ICT business and handset business, striving to generate increased returns.