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7 September 2021

ZTE outperforms mobile equipment rivals despite networks stall

Only its carrier networks division has failed to register revenue growth for Chinese telco system vendor ZTE, which has just posted an overall 12.4% rise for the first half of 2021 to reach RMB53.07bn ($8.19bn). This is more than any of its immediate rivals and in stark contrast to its big Chinese competitor Huawei, which registered a steep 29.4% year-on-year decline, admittedly from a base six times higher, coming down to RMB320.4bn ($49.4bn). ZTE also outscored Huawei on net profit, up 119.6% year-on-year at RMB4.08bn ($628.4m), against a rise of 3.8% for Huawei.

This disparity reflects ZTE suffering far less than Huawei from US restrictions on access to components the country exerts control over, as well as to its markets. This has spilled over into other countries in Europe and the Far East, such as the UK, Sweden and Australia. Huawei has staked out a far bigger role in the 5G roll-outs of many countries that have now excluded it under pressure from the USA or their own security agencies.

There has still been some impact, with ZTE joining Huawei in being excluded from India’s 5G trials, for example, where it would most likely have been involved. This helped to explain ZTE’s carrier network sales flatlining at RMB5.05bn ($777.5m) for the half year.

Operating international revenues rose 10.8% to RMB17.12bn ($2.63bn), 32.3% of the total, again underlining that degree of immunity from US actions. On the other side of that coin, both ZTE and Huawei benefited from a swing in China towards its indigenous vendors in reaction to the foreign embargoes, as the former’s government and corporate business revenues increased by 17.7% year-on-year to RMB5.67bn ($873.4m), while server and storage products and services doubled in the domestic market.

The two companies were separated again over consumer services, where ZTE recorded revenues of RMB12.35bn ($1902.3bn), up year-on-year by 66.6%, with revenue of residential terminal services and mobile devices services rising by 90% and 40% respectively. Huawei’s Consumer Business Group sales slumped 46% year-on-year to RMB135.7bn ($20,941.8bn). Huawei attributed this directly to the “totally unjustified” US measures.

ZTE is also outperforming its other two major rivals on the cellular equipment front, the Nordic pair of Ericsson and Nokia. Ericsson has suffered the flip side of the Huawei effect in having reduced access to the Chinese market in retaliation for Sweden’s exclusion of the Chinese vendors. This was acknowledged by CEO Börje Ekholm as the major factor denting first half 2021 revenues reported in July 2021. Sales in Mainland China were down by $290m year on year, despite which group revenues for the half rose 8% to almost $6.4bn.

Nokia has not suffered this fate because its home country of Finland has declined so far to issue an outright ban on Huawei or ZTE from its 5G infrastructure. Nokia has different problems relating to costs of manufacture that have been partially resolved, but at least it has profited somewhat from Ericson’s partial exclusion from China, given the desire by operators there to avoid over dependence even on their own domestic vendors.

This resulted in Nokia in July 2021 winning its first 5G radio contract in China, amounting to a 10% share in one of three contracts with China Mobile. Ericsson took 9.6% of another contract, but that was only 2% of the total value of all three, compared with over 10% of a similar tender a year earlier. The Chinese award came too late to bolster Nokia’s first half 2021 revenues, which were up 4% at €5.3bn ($6.3bn).

For ZTE, it was earlier US action, imposition of sanctions on trade with Iran soon after the start of the Trump Presidency, that caused severe financial distress. The company was found to have breached the sanctions and was forced to cease most business from April to July 2017, ending up paying $1.4bn for them to be lifted. This led to ZTE, by then the world’s fourth largest overall telco equipment maker, to lose $1bn in 2018, despite rebound in the final quarter of that year.