ZTE steps up 5G network gear deployment overseas as capital spending in China is set to decline
- The Shenzhen-based company has secured 35 commercial 5G equipment supply contracts across major markets around the world
ZTE Corp, the world’s fourth largest telecommunications equipment supplier, is accelerating deployment of its 5G gear overseas amid a potential decrease in capital spending by mobile network operators in China.
The firm projected its overall net profit this year to range from 4.3 billion yuan and 5.3 billion yuan, according to a statement released after the close of trading in Hong Kong and Shenzhen.
Its preliminary estimates show that net profit for the quarter ended September 30 reached 2.7 billion yuan, up 371 per cent from the same period a year ago. Revenue grew a modest 1.5 per cent to 19.6 billion yuan.
Shares of ZTE rose nearly 1 per cent to close at HK$21.55 on Monday before its third-quarter results were announced.
Despite the strong quarterly profit, which was helped by a one-off real estate transaction gain, ZTE faces some major challenges in its home market, according to analysts.
In September, Jefferies cut its rating of ZTE to “underperform” from “hold” because of a plan by China Telecom and China Unicom to jointly build their 5G network as well as share development of one 5G rural network with China Mobile.
“We estimate that the recently announced plans ... could reduce China’s total telecoms capital expenditure over the next eight years by roughly 10 per cent,” Jefferies analyst Edison Lee said in that report.
That 5G infrastructure strategy could potentially hurt ZTE because the company generated about 72 per cent of its carrier equipment business in China in 2017 and 2018. Carrier revenue from its home market made up close to 50 per cent of ZTE’s total revenue in each of those years.
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That would make a 10 per cent reduction in the size of 50 per cent of ZTE’s potential market “a material negative for its growth prospect”, Jefferies’ Lee said.
Still, ZTE remains optimistic about its international operations. By the end of September, ZTE established 5G cooperation pacts with more than 60 mobile network operators across the globe, according to the company’s statement.
For its consumer business, ZTE said it has strengthened cooperation with more than 20 mobile network operators worldwide in distributing its 5G terminals. ZTE’s Axon 10 Pro 5G, for example, became the first commercial 5G smartphone released in China, Northern Europe and the Middle East.
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