ZTE swings back to profitability in 2013 thanks to LTE networking

ZTE reported a net profit for all of 2013 thanks to the strength of its LTE network projects. This is a welcome change of pace for the company, which posted its first ever yearly loss for 2012.

The Chinese network gear and device company said it had an annual 2013 net profit of around $219.27 million, compared to a 2012 net loss of around $418.7 million. The company's profit for 2013 was in line with company's forecasts of somewhere between $193 million and $241 million.

However, ZTE said its operating revenue for 2013 fell 10.6 percent from 2012 to around $12.1 billion. In a bright spot for the company though, ZTE reported operating revenue of $6.38 billion from international operations outside of China, accounting for 52.6 percent of its total revenue. "As a result of efforts to focus on major countries and mainstream operator partners, ZTE strengthened its relationships with key multinational customers," the company said in a statement.

Indeed, although ZTE is largely shut out of the North American network gear market because of national security concerns (which the company has said is unfounded), ZTE has seen more network deals in Europe and Africa. German operator E-Plus revealed last month that ZTE is now handling the deployment and operation of its network, in an extension of existing dealings between the two companies. The KPN-owned carrier said the five-year managed services contract signed last year is the largest of its kind in Europe.

ZTE said in 2013 it benefited from putting a focus on "strategically important operations in populous countries, and the development of business with major international operators." ZTE was also, along with Huawei, one of the main suppliers for China Mobile's massive TD-LTE rollout. The company also said it clamped down on contracts with lower margins, resulting in improved gross margins for its international projects.

In terms of devices, ZTE said that operating revenue from its terminal products decreased in 2013 as a result of lower demand for feature phones and USB modems and data cards. However, smartphones and other "smart terminal" products  like tablets now contribute a bigger percentage of total revenue, the company said.

ZTE was the No. 5 overall handset vendor in the world for 2013, according to research firm Gartner, but it has seen its position in smartphones be eclipsed by Chinese rivals Huawei and Lenovo. In 2014, ZTE will be under even more pressure as Lenovo completes its $2.91 billion acquisition of Google's (NASDAQ:GOOG) Motorola Mobile division. That deal will likely make Lenovo the world's No. 3 smartphone player by volume after Samsung Electronics and Apple (NASDAQ:AAPL), according to analysts.

For 2014, ZTE said its next-generation devices "will feature higher levels of intelligence affording greater flexibility to users." The company will also focus on wearable computing devices, which more and more smartphone makers are moving toward.  Company executives have also said that the firm's high-end smartphones will get greater support in 2014 from U.S. carriers.

For more:
- see this release
- see this Reuters article
- see this BBC article

Related Articles:
ZTE makes headway in Europe with E-Plus deals
Lenovo to become world's No. 3 smartphone vendor with Google's Motorola
Huawei, ZTE have high U.S. handset ambitions, face uphill battle
ZTE's Grand S II smartphone to get U.S. carrier support
ZTE creates separate mobile unit, promises to be more efficient

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