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Friday, March 20, 2009

ZTE Ramps 2008 Revenues

ZTE Corp. defied the economic downturn in 2008 with a 27.4% increase in annual revenues to $6.5 billion and a near 33% rise in net profit to $243 million

The figures show how much the company has progressed in the past two years: 2008's revenues are almost double those of 2006.

Hou Weigui - ZTE's chairman - stated in the company's earnings announcement that the vendor "expects to see growth opportunities in the domestic market." In China, the vendor's sales grew nearly 19% to $2.56 billion, driven by early 3G rollouts and fixed broadband expansion. And it looks like there's more of the same on the way.

ZTE believes it's already the leading provider of 3G infrastructure to the country's three main operators, claiming to have landed about 30% of the business awarded so far.

International sales also grew, by 33.5 percent to $3.9 billion, to account for nearly 61 percent of all revenues. The vendor notes that while "the impact of the financial crisis will continue to be felt" in 2009, ZTE will focus on achieving "major breakthroughs in developed countries" and steadily growing its business in developing markets.

In its annual results filing with the Hong Kong Stock Exchange, ZTE noted that it had cemented its position in India, and had made "breakthroughs in markets where we traditionally lagged behind, such as the Middle East, CIS and South America."

Unlike its chief domestic rival, Huawei Technologies Co. Ltd. , ZTE is still struggling to generate significant revenues from developed markets, though: Only 16% of its 2008 sales came from outside Asia/Pacific and Africa. And the business practices of some of its staff don't help its cause sometimes, either.

Table : ZTE 2008 sales by region

Region 2008 Revenues in RMB millions % of 2008 revenues
China 17,466 39.4
Asia/Pacific (excluding China) 10,433 23.6
Africa 9,311 21
Others 7,083 16
44,293 100

Of ZTE's overall revenues, 65.4% came from telecom infrastructure, 21.9% from handsets, and 12.7% from software, services, and other products.

The company noted in its annual results that it maintained "rapid year-on-year growth in global deliveries for GSM and WCDMA [infrastructure]," while "our business in optical transmission products continued to report rapid growth in Southeast Asia, Asia Pacific and South Africa, while considerable progress was also being made in America and Europe. At the home market, we held a dominant market share for FTTX products."

Competitive and pricing pressure hit ZTE's infrastructure margins, though. In 2008, the gross margin on carrier network equipment sales was 35.8%, down from 39.6%in 2007.

But the gross margin for handset sales improved slightly, to 23.7% from 21.7% a year earlier, while the margin from software and services jumped to 30.3% from 16.7% in 2007. ZTE's overall gross margin for 2008 was 32.5%, down slightly from 2007's 32.7%.
ZTE ended 2008 with cash and cash equivalents of $1.66 billion.

Although the company didn't provide any guidance as to its 2009 financials in any documents today, it has stated previously that it expects to grow this year.

Ray Le Maistre

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