ZTE returns to profitability ahead of potential U.S. trade tariffs

ZTE C-V2X demo MWC
5G continues to be a main thrust for the company. (Image: ZTE)

Chinese handset maker and telecom supplier ZTE Corp. has reported full-year net profit of 4.57 billion yuan, or about $721 million. That’s a whopping increase of 293.8% over 2016, and marks a return to profitability after faltering a year earlier.

It also reported revenue of 109 billion yuan in 2017, which is 7.5% higher than a year earlier.

The swing back to black isn’t unexpected: The company said that 2016’s net loss of 2.4 billion yuan was a direct result of a $892 million fine paid to the United States for breaking U.S. trade sanctions; absent the penalty, ZTE said it would have made 3.8 billion yuan in net profit.

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For 2017, the company reported 64 billion yuan in revenue from its carrier networks division, 35 billion yuan in the consumer segment, and 10 billion yuan from its government and enterprise businesses. Out of the total, 62 billion yuan came from domestic activities in China, and 47 bilion yuan came from international markets.

Aside from its market position in optical carrier networks and its success in smartphones, 5G continues to be a main thrust for the company. In 2017, it focused on 5G standardization, product development and commercial use verification, and logged several milestones along the way: In collaboration with China Mobile and Qualcomm, ZTE completed an end-to-end 5G New Radio (NR) Interoperability Data Testing (IoDT) system based on the latest 3GPP 5G NR standard; and, in partnership with Intel, it launched an SDN/NFV virtualization-based 5G RAN solution. ZTE also said that has formed strategic partnerships with over 20 operators worldwide to “jointly advance the verification and test of 5G technologies.”

It also recently said it was on track to launch 5G smartphones, tablets and customer premises equipment later this year or early in 2019.

“The group is set to welcome new opportunities for development, given rapid growth in the volume of data flows,” said ZTE chairman Yin Yimin, in a statement. “Specifically, such opportunities will be represented by an accelerated process of 5G commercialization, underpinned by ongoing upgrades in network infrastructure; robust demand for smart terminals; and an onrush of new technologies and models, with AI, IoT and smart home, among others, providing new growth niches.”

Going forward, the company said that it will continue to invest in proprietary core technologies and increase investments in the R&D of 5G and other core products; however, the waters could get choppy for the vendor if the Unites States imposes additional tariffs on Chinese goods. To boot, in February, the heads of U.S. intelligence agencies recommended to the Senate Intelligence Committee that ZTE (and Huawei) products could be used for espionage purposes.

"We're deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don't share our values to gain positions of power inside our telecommunications networks," FBI Director Christopher Wray said at the time. "That provides the capacity to exert pressure or control over our telecommunications infrastructure. It provides the capacity to maliciously modify or steal information. And it provides the capacity to conduct undetected espionage."