ZTE sets sights on growth markets as third quarter sales miss analysts estimates

ZTE, China’s largest listed telecommunications equipment manufacturer, is betting on its core carrier network and smartphone businesses to drive growth for the rest of the year after posting third-quarter revenue that missed analysts’ estimates.

The Shenzhen-based company reported on Thursday a 10.5 per cent year on year increase in net profit to 1.09 billion yuan (HK$1.25 billion) for the third quarter ended September 30, driven by Chinese telecommunications network operators’ investments in 4G mobile and fixed-line broadband infrastructure.

Total revenue for the third quarter advanced 5.23 per cent to 23.8 billion yuan, which was below the market analysts’ consensus estimate of 26.27 billion yuan for that period.

ZTE’s share price fell 1.26 per cent to close at HK$10.96 in trading on Thursday.

In its filing with the Hong Kong stock exchange after the market closed, ZTE said that pressures from a weak global macroeconomy impacted the telecommunications industry in the past three quarters.

Nomura analyst Huang Leping said in a report that “ZTE’s long-term growth story remains intact”, despite the anticipated gradual decline of 4G-related capital expenditure by the “big three” domestic carriers – China Mobile, China Telecom and China Unicom.

ZTE chairman Zhao Xianming said in the company’s filing that the company will stay focused on its

three mainstream markets of “carriers, government and corporate business, and consumers”.

“The group will actively develop smart pipes in association with telecommunication operators and help them to evolve into information operators,” Zhao said.

With the 4G capital expenditure cycle expected to eventually wind down, both ZTE and crosstown rival Huawei Technologies have been vocal about their desire to roll out extensive information and communications technology infrastructure to support more advanced services.

Both ZTE and Huawei are already helping spearhead the deployment of advanced 5G-ready mobile infrastructure in Japan.

Equipment from ZTE and Huawei is exclusively involved in the world’s first commercial roll-out of Massive Mimo technology in Japan, sources told the South China Morning Post in a report published last month.

Massive Mimo, also known as large-scale antenna systems, represent one of the key technologies behind future 5G networks. Industry standards for 5G remain under development.

SoftBank Corp, the domestic telecommunications subsidiary of Japanese conglomerate SoftBank Group Corp, and affiliate Wireless City Planning, last month started their so-called 5G Project that will see Massive Mimo deployed as part of plans for a full 5G mobile services launch in 2020.

ZTE also reported that its chip shipments doubled compared to the same time last year, and expects core wireless solutions encompassing 5G technology chips to achieve “strong momentum in the future”.

The company said its smartphone business has also improved, reaching top-five positions in terms of shipments in markets that include Spain, Russia, Australia and Mexico.

In a separate filing on Thursday, ZTE said it will set up a 5 billion yuan investment fund with a unit of GF Securities. This initiative will focusing on smart cities, underground pipe networks and data centre projects that are relevant to its business.

Nomura’s Huang said there has so far been limited impact on ZTE’s business from United States export restrictions. The US slapped ZTE with restrictions on sourcing components from American suppliers in March for its alleged violation of export controls on Iran.

In August, the US granted ZTE its third three-month reprieve since March from those restrictions.