ZTE remains bullish about its prospects in 2019, after a year that saw its revenues drop by more than 20% to USD12.7 billion, resulting in losses of USD1.04 billion (down 253% YoY). This included that hefty fine levied by the US government (USD1 billion plus USD400 million placed in escrow in case it failed to change its business practices).

The company’s smartphone business took a big hit in 2018, with revenue dropping 45%. This  reflects both US sanctions and the ongoing lengthening of consumer buying cycles in the handset business. In contrast, ZTE’s network business dropped by 10.5%, and its B2B business (which includes public sector) was down by a more modest 6%.

As might be expected, the biggest declines from a geographical perspective were in mature markets allied to the US; but even the domestic market (which accounts for almost 64% of its total business) was down 12%. In contrast, business in Africa grew 8.4%, although it has to be said that this unit currently only accounts for a small proportion of ZTE’s overall revenues (less than 5%).

ZTE is likely to have continuing trouble within Europe and North America due to the US government’s lobbying to ban Chinese vendors from networks, but this is where ZTE’s promising toehold in Africa could be highly strategic.

Like other network equipment providers (NEPs), ZTE is betting big on 5G with considerable investment in this area. Africa has not invested as heavily in 4G as Europe and North America, and therefore has the possibility of leapfrogging to 5G. Rain, the data-only South African new entrant, for example, announced the launch of its 5G network at MWC 2019 – albeit that its equipment is provided by rival NEP Huawei. Targetting markets that are less influenced by US politics provides more than enough growth potential for the company, provided it can assure the supply of vital components (which the American government withheld via an export ban during its 2018 standoff with the company).

ZTE has not only invested heavily in 5G capabilities but, like Huawei, also has critical handset capabilities. This capability is vital to early 5G success, as history has taught us that if handsets are not widely available it will impede the take-up of new network technology.

ZTE, in partnership with China Unicom, made the first 5G call in January 2019. Carried out in the Shenzhen 5G test field, the call utilised ZTE’s 5G prototype phone that supports both sub-6GHz and mmWave 5G mainstream bands.

In April 2019, ZTE along with Orange Spain, made the first standalone 5G call. Both Orange Spain and ZTE were careful to point out that previous “firsts” announced in South Korea and the US used a combination of 5G radio on top of 4G core networks.  Orange Spain has said it now plans to extend its 5G trials and use cases to industries such as construction, energy, health, automotive and tourism, along with trial rollouts for consumer applications.

By appeasing the US and concentrating on its 5G story, ZTE is positioning itself for rehabilitation in the global market. Although negative commentary accompanied the news that ZTE’s state-backed majority shareholder was divesting a large portion of its shares – the concern being this would make it harder for the company to access cheap loans – this helps to dilute the accusation that it has close links to the Chinese government. Unbiased observers might also comment that ZTE is dammed if it does and dammed if it doesn’t. However, the boost that 5G is bound to give to the handset market, when manufacturers finally get their acts together, as well as a more mindful strategy for 5G (of spreading risk and targeting more diverse markets) puts ZTE in a far more positive bracket than many would have suspected possible in mid 2018.

Posted by Teresa Cottam

Teresa is the Chief Analyst at Omnisperience and has over 25 years' experience in the telecoms and technology markets. She is an expert on SME and enterprise telecoms, and has considerable vertical market expertise. Her research focus lies in helping B2B telecoms firms become more commercially successful by better understanding and meeting their customers' needs. She is a judge of the GSMA Global Mobile Awards (GloMo's) for customer experience and enterprise innovation, and for the UK Cloud awards. You can follow her on Twitter @teresacottam

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