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The Net Profit of ZTE Has Increased by 94%: Will It Be on a Continuation of High Boom?

2014 is considered as the era of 4G in china. Operators build BTS and strive for more customers, 4G transaction is in full swing all over the country. Who is the biggest beneficiary? Maybe we can get some hint from the annual report of ZTE.

Last night ZTE released the 2014 performance report which showed the ZTE Corporation had an operating income of 81.47 billion RMB that was 8.3% higher from the year earlier. The net profit of CSSC holdings reaches 2.63 billion RMB, which had grown 94.0% from the year earlier. Almost every share benefits 0.77 Yuan, so ZTE has planned to distribute all shareholders 2.0 Yuan per 10 shares; The increase in capital reserve per 10 shares to 2 shares.

Benefit from the great development of 4G

ZTE acclaimed that the contract profitability would continually improve and both the sales scale and the gross margin had grown a lot owing to the domestic TD-LTE, FDD-LTE and the income growth of international 4G cellphones. At the same time, ZTE Corporation strengthened the control of financial expenses and minimized the effect of exchange rate fluctuation, which made comprehensive financial cost decrease drastically.

The annual report indicated that the domestic operating income was 40.58 billion RMB, which occupied 49.8% of the whole operating income. ZTE said it focused on the three largest markets –operators, government-enterprise and consumers. Besides, ZTE will deepen the implementation of M-ICT to maintain the dominant position by competitive creative solutions.

On one hand, the international market has an operative income of 40.89 RMB, which make up 50.2% of the whole team receipts. ZTE will continuously stick to the strategy of deepening the markets of large-population nations and the global mainstream operators to achieve the target of sound operation and high-quality growth.

On the other hand, carrier networks and mobile terminal operating income has risen from the year earlier. The system of telesoftware, service and other products operating income has a trend of declining when compared with last year.

ZTE stated that the growth of carrier networks operating income depend on 4G products, router and switch at home and abroad and optical communication system. And the growth of mobile terminal operating income is mainly up to 4G phones operating income. Telesoftware system, service and other products operating income has declined because of the decrease of international operating income.

So we make a conclusion that 4G devices and overseas cellphones transaction are the key point of rich income in 2014, which can be seen from the terminal financial statements and the related market data. ZTE start gaining profits from continual devotement of 4G products reach and development. The whole year income of wireless products has grown 20% from the year earlier. The shipment of 4G BTS has doubled and the market share of the global is over 25%, which made ZTE be the fastest growing manufacturer of 4G again in the world after 2013.

Apart from above all, what we should pay attention to is that smartphone transaction has improved in 2014. In the age of M-ICT, to dominate the smart terminal markets and HCI markets ZTE terminal takes the lead in voice interaction and terminal security technology. And the star 2 and Grands S3 have been launched successively. It is enumerated that ZTE phone has 7.8% market share, ranking the fourth. And the top three are Samsung, Apple and LG.

Can it have a continuation of high boom in 2015?

Because of the leading share of operator in 4G bidding, the industry has made an expectation at early times. As a consequent, can it have a continuation of high boom in 2015?

ZTE has a strong confidence when faced with this question. Hou Weigeng, the chairman of ZTE said in the annual report that though the traditional telecommunications market met great challenge, the operating data service was on high-speed growing and the operators was transforming to internet service. At the same time, everything mobile internet age will be popularity in the telecommunication field development not only human-human, but human to article and article to article.

ZTE will aim for grasping the opportunity of time-reconstruction, creating value depending on the information and focus on the three largest markets –operators, government-enterprise and consumers. Besides, ZTE will gain profit by means of innovation in business and technology, which are centered on the smart voice, smart wireless-charging, distributed electricity generation, large data platforms and applications, internet finance, mobile payment and so on.

Guotai Junan Securities Research newspaper holds the view that ZTE has gradually made it clear that it must execute the strategy of diversified competition and the strategy will be launched deeply and make a breakthrough in M-ICT field.

As for the continuation for the achievement, EMC stock research newspaper thinks that though domestic 4G construction is growing vigorously, the FDD license is still not issued and the income identification exhibits hysteresis. So it is forecast that some orders will be put behind to 2015 and EMC stock research newspaper holds an optimistic attitude for 2015 operator network transaction. In addition, the EMC stock research newspaper also the strategy investment value of ZTE will stand out with the launch of M-ICT strategy.