Cui Li, chief development officer and chief of staff at ZTE, in an exclusive interview with Mobile World Live at its headquarters in Shenzhen, expressed wide optimism brisk demand for efficient and green technologies and industrial transformation gear, and a rebound in China, will boost its long-term fortunes.
The executive (pictured) insisted the company, despite short-term obstacles and on-going macroeconomic uncertainties, is committed to forging ahead with a strategy introduced in 2018 after a management change, with more targeted resource allocation improving RoI. It has worked to boost investment in cutting-edge technologies, streamline operations and offer customers end-to-end platforms to help simplify their business systems.
The company believes the telecoms sector has attractive growth potential in the longer term. “With our focus on improving energy efficiency, ZTE is well positioned to benefit from future growth.”
She highlighted a number of key drivers.
While operator investment in wireless gear has slowed due to economic headwinds and other factors, demand for network transformation equipment is rising, companies are upgrading transport and backbone networks, and the transition from copper to fibre is accelerating in many countries.
Chinese cloud service providers are going global, and international operators are increasing investment in computing power, boosting demand for servers, storage products and data centres.
While acknowledging a past focus on delivering value to operators with its lower-cost network equipment, Cui emphasised over the past two decades it improved its operational efficiency and now has a significant technical advantage in many product areas, including 5G RAN, core networks and cloud servers.
The pace of its R&D investment as a percentage of sales climbed sharply over the last few years. R&D spending for the first nine months of the year increased 18.3 per cent year-on-year to CNY19.1 billion, or 23.1 per cent of total revenue. The figure was 17.6 per cent in 2022 and 13.8 per cent in 2020.
The hefty investments are yielding results.
During a tour of its innovation exhibition, the vendor teased an all-in-one 5G logic board design, claiming an industry first, reducing base station weight 25 per cent, by combining transceiver, filter board and antenna board into a single layer, with the unit likely to be released next year. It previously reduced the format from three layers to two, cutting weight by 30 per cent.
The company boasts a fully automated factory in Nanjing producing high-end 5G kit. The annual output of the 800,000-square-metre Binjiang plant was boosted by 50 per cent from the original target when it started operations in 2020 by automating all processes using robots and unmanned trolleys, calling the facility a ‘dark factory’, since without workers, there is no need for lighting.
“It has been a long journey to become a leader in 5G era. We have continued to improve our competencies and are confident in our innovation,” Cui stated.
The company also does not face US restrictions on the import of advanced components and its in-house designed 5G baseband chips, among others, are produced by Taiwan Semiconductor Manufacturing Company.
Cui noted that with a rise in consolidation, pointing to recent mergers in Malaysia and Thailand and discussions in other APAC markets, there is growing demand for simplification of network assets and end-to-end offerings. “We have a competitive edge over overseas vendors,” claiming a majority share of CelcomDigi’s RAN installation.
She downplayed speculation the 5G growth wave has ended, even with more than 3 million 5G base stations deployed across the mainland over the last four years.
While noting 5G investment peaked and has slowed, the major operators are working on projects using the 700MHz, 800MHz and 900MHz bands, including upgrading high-speed railways, adding indoor coverage and migrating to 5G Advanced.
“Domestically there are still short-term pressures. ICT investments have slowed. But the long-term macro conditions are getting better… we’re seeing some good signs with government support to develop the digital economy.”
The major operators’ push for cloud-network convergence and computing infrastructure construction is driving rapid revenue growth in server and storage products, data centre switches and new data centres.
The company also sees huge potential locally for cloud PCs and tablets in the enterprise sector, with only 4 per cent penetration in China, compared with 40 per cent in many western markets.
The company’s cash flow is healthy and its debt ratio declined over the past 19 quarters to below 65 per cent from 73 per cent in 2019. Cui declared the company has the resources and financial flexibility “to help us when we face uncertainties and the determination to make incremental progress over time”.
Following a US trade ban five years ago for sanction violations, which was lifted after ZTE paid a $1.4 billion fine and agreed to a leadership change, the company’s revenue grew briskly between 2018 and 2022, climbing a combined 43.9 per cent to CNY123 billion.
Since recording a CNY7 billion loss in 2018, ZTE’s net profit increased by double-digit figures over the past two years to CNY8.1 billion at end-2022. Profit for the first nine months of 2023 was up 15 per cent to CNY7.8 billion.
With international sales falling 8.3 per cent to CNY17.6 billion in the first six months of 2023, domestic sales, up 6.2 per cent to CNY43.2 billion, accounted for 71 per cent of the total compared with 68 per cent in H1 2022.
Cui said its smartphones business registered growth despite weak global demand, without disclosing details.
Outside of China, the company’s focus is on developing markets across the world, with access to many countries in the west restricted. “We have to admit we face challenges in western markets. But we are not ignoring these regions, with aims to establish partners with tier-one operators in different areas,” she said.