ZTE announces 2011 financials: turnover up, profits down, political scandals tricky

ZTE's annual earnings report is out and it's a mixed bag for the Chinese company with aspirations to go west. Revenues grew 23 percent to 86.25 billion RMB ($13.7 billion) but net profit fell a hefty 36.6 percent to 2.06 billion RMB ($327 million). More than half of ZTE's operating revenue came from overseas as the company moves into the global space and, while some of that cash came from its smartphone business, much more poured in from the infrastructure arm that supplies LTE equipment to networks. At the same time, ZTE is having to deal with accusations that it sold $131 million worth of snooping gear to Iran to monitor its own citizens, forcing the company to limit its operations there -- although it insists this won't have any impact on its future income.

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ZTE Revenue Grows 23% to RMB 86 Billion

Company sees 24% increase in revenue in overseas market

28 March 2012, Shenzhen, China – ZTE Corporation ("ZTE") (H share stock code: 0763.HK / A share stock code: 000063.SZ), a publicly-listed global provider of telecommunications equipment and network solutions, today announced its annual results for the year ended December 31, 2011.

Based on HKFRS, ZTE recorded revenue of RMB 86.25 billion in 2011, an increase of 23.4% compared to 2010. Net profit was RMB 2.06 billion, down 36.6% from 2010's result. Basic earnings per share were RMB 0.61.

Applying PRC ASBEs for the period ending December 31, 2011, the Group's revenue from principal operations was up 23.4% to RMB 86.25 billion from 2010. Net profit was RMB 2.06 billion, down 36.6% from 2010. Earnings per share were RMB 0.61. The Group's domestic and overseas operating revenue grew 22.7% and 24% year-on-year respectively. In 2011, ZTE's terminal products sales continued to grow, with operating revenue of RMB 26.93 billion, up 52.6% from the previous year.

The Board of Directors has recommended a cash dividend of RMB 2 (including tax) for every 10 shares.

ZTE has issued RMB 2.09 billion in cash dividends over the past three years. The dividend payout ratio was 30.6% in 2011, above the rate of 20.8% in 2009 and 24.2% in 2010.

During the reporting period, ZTE reported operating revenue of RMB 39.50 billion from the domestic market, accounting for 45.8% of overall operating revenue and representing a year-on-year growth of 22.7%. The 12th Chinese National Five-Year Plan was also a driver of the company's development. ZTE assisted with the development of large 3G developments in China and construction of the country's national broadband network in 2011. The company's domestic operating revenue grew in the domestic market through its support of 3G carriers. It also deployed broadband access networks and ancillary transmission networks.

From the overseas market, ZTE reported operating revenue of RMB 46.76 billion during the period, accounting for 54.2% of overall operating revenue and representing year-on-year growth of 24%. The company endeavored to enhance its market position by taking advantage of changes in the competitive landscape and developing its position in the international market. In 2011, the company reinforced its position in emerging markets and continued to achieve and cooperate with mainstream global carriers. As a result, ZTE sustained relatively fast year-on-year revenue growth from its international business.

In emerging markets, ZTE has completed market deployments following agreements with mainstream operators such as MTN and América Móvil. It also strengthened cooperation with multinational operators such as Telefonica and France Telecom. In Europe, the company's system equipment has been implemented by nine of Europe's top 10 operators. In Japan, ZTE was selected by Softbank for TD-LTE projects.

The company further strengthened its role as an industry and technology leader in the TDD area with global promotion of TD-LTE in 2011. ZTE secured over 30 commercial LTE contracts and worked with over 100 operators around the globe to build testing networks during the year. ZTE also completed commercial deployments with top operators such as H3G, Hi3G, Softbank and CSL. In addition, market share has grown in both UMTS and GSM products. The company continues to strengthen its cooperation with operators like France Telecom and MTN Group.

The company also maintained its leading market share in the PTN area. Furthermore, the company's high-end data communications technologies such as the M6000/T8000 router and next generation PON products reached a high point, with ZTE recording the highest market share in the world for these products.

According to a 2011 report by research firm Gartner, ZTE became the second-fastest growing smartphone company in the world during the year. ZTE also was the fourth-largest mobile manufacturer in the world in terms of shipments during the year. Growth from both mainland China as well as high-end markets like the United States, France and the U.K. were the main sources of the company's handset sales growth in 2011.

In addition to the company's growth in global market shares, ZTE sustained its strength in patent applications. Based on an announcement by the World Intellectual Property Organization (WIPO), ZTE filed for the most PCT patents of any company worldwide in 2011 with 2,826 filings. Of these, more than 60% were related to smart terminals and new technologies such as LTE/3G, cloud computing and The Internet of Things. The company's 4G/LTE patent applications accounted for 7% of patents applied for by global telecom vendors. Its smartphone-related patents applications were the fourth-largest globally and No. 1 nationally.

"In 2011, equipment investments by the telecommunications industry varied by region across the globe," said ZTE Chairman Mr. Hou Weigui. "During the year, ZTE adjusted its product lines to continue to provide comprehensive integrated solutions to carriers. A range of measures designed to improve efficiency and optimize production processes also were introduced."

Mr. Hou added: "In 2012, ZTE will continue its commitment to technological innovation. The company will proactively shift from being product-oriented to a solutions-oriented business. We intend to further consolidate our market position by expanding into the government enterprise and service sectors. We also seek to increase sales to mainstream carriers. This is part of our ongoing strategy of focusing on major nations and mainstream carriers."