One Belt, One Road, One ZTE: Chinese telecoms giant says revenue could hit US$30b by 2020 if 5G plans stay on song

Company also intends to capitalise on China’s plan to re-establish a Maritime Silk Road and economic belt, as well as upgrade its manufacturing sector to compete with industrialised nations by 2025

PUBLISHED : Wednesday, 30 December, 2015, 4:15pm
UPDATED : Wednesday, 30 December, 2015, 4:21pm

ZTE, China’s largest-listed telecommunications equipment manufacturer, plans to shore up its research and development capabilities to push forward innovation that will drive sales growth over the next several years.

Shi Lirong, the president and chief executive at ZTE, said on Tuesday that the company was well-positioned to expand its global business and reach its annual revenue goal of 200 billion yuan (US$30.83 billion) by 2020.

In his year-end message to the company, Shi said ZTE will be able to hit that annual revenue target on the back of growing infrastructure development projects with telecommunications network operators, enterprises and governments at home and abroad, as well as new initiatives in the semiconductor industry.

Shenzhen-based ZTE has also budgeted expenditure totaling about US$220 million worldwide on developing 5G and other advanced mobile communications technologies from this year to 2018.

The company is also investing 4 billion yuan to build a new research-and-development hub and manufacturing complex with a gross floor area of 260,000 square metres in Changsha, the capital of Hunan province in central China, according to its filing with the Hong Kong stock exchange on Monday.

That vast facility will be engaged in developing and producing various smart mobile devices, storage products and software related to so-called cloud computing applications.

Shi said ZTE, which marked its 30th anniversary this year, will emerge as a global leader in next-generation mobile technology with the roll-out of its initial 5G networks in mainland China, South Korea and Japan in 2020.

Separate partnership agreements have already been signed between ZTE and major carriers China Mobile, SoftBank in Japan and KT in South Korea to implement so-called pre-5G networks, which enable the operators to emulate future 5G services over their existing 4G infrastructure.

READ MORE: China to get ‘10 times faster’ pre-5G internet in 2016 amid premier’s push for tech development

Shi pointed out that the company’s longstanding efforts in innovation have made it one of the top-three companies in China in terms of R&D spending.

“In the technology industry, exciting new opportunities are opening up as the inexorable growth of the mobile internet allows more people, businesses and objects to connect, creating smarter and more user-friendly services and applications,” he said earlier this month.

ZTE Microelectronics Technology, one of the company’s subsidiaries, is expected to further grow its business during this decade, after it received a 2.4 billion yuan investment from a state-backed fund.

The National Integrated Circuit Industry Investment Fund Corporation, which counts the Ministry of Finance, China Development Bank and China Mobile as shareholders, has agreed to buy a 24 per cent equity stake in the chip developer.

“The introduction of strategic capital will allow ZTE Microelectronics to strengthen its research and development capabilities, and reserve of core patents,” ZTE chairman Hou Weigui said in a regulatory filing last month.

ZTE Microelectronics, which had revenue of 3.06 billion yuan last year, currently develops chipsets deployed in cellular base stations used by telecommunications network operators to support multiple frequency band wireless access.

This company also supplies chips for smartphones and other mobile devices shipped to China as well as to Brazil, Indonesia and Russia.

Shi forecast this subsidiary would become the third-biggest domestic chipmaker on the Chinese mainland.

The Ministry of Industry and Information Technology said the semiconductor industry was vital to national development and information security. But the sector remains too small to meet domestic demand, which is forecast to rise to 1.2 trillion yuan this year from 916 billion yuan in 2013.

Shi said ZTE’s involvement in so-called smart city projects in China is expected to help the country take the lead in further developing the relevant technologies in this nascent industry.

READ MORE: China poised for leadership role in smart city technology as rural to urban migration continues

Smart cities deploy information and communications technology solutions in three or more functional areas of a city government, according to research firm IHS.

Examples include mobile and transport, energy and sustainability, physical infrastructure, governance, and safety and security.

Infrastructure works related to smart city projects are growing globally in response to an increasingly urbanised world dealing with ever-more scarce resources, along with the desire to improve efficiency.

ZTE’s smart city projects in China cover essential areas of the domestic economy including transportation, education, health care and various government services.

Shi said ZTE has already signed up more than 100 Chinese cities and a few dozen more across Asia for smart city projects.

“We attribute [ZTE’s] strong telecommunications software, services and other sales to the spread of enterprise projects and smart cities in China,” CCB International analyst Ronnie Ho said in a report.

ZTE’s revenue from January to September grew 16.53 per cent year-on-year to 68.52 billion yuan on strong 4G network, cloud computing and smart city projects on the mainland. That helped its net profit to rise 42.19 per cent to 2.60 billion yuan.

Its R&D spending over the past three quarters reached about 10 billion yuan.