In a turbulent year, ZTE suffered a loss again after its revenue exceeded 100 billion yuan

On March 23, ZTE released its full-year performance report for 2016. The report showed that ZTE achieved full-year operating revenue of 101.23 billion yuan, a year-on-year increase of 1.0%; and achieved operating profit of 1.17 billion yuan, a year-on-year increase of 263.7%.

In 2016, ZTE achieved revenues of RMB 58.55 billion and RMB 42.68 billion in China and abroad, accounting for 57.8% and 42.2% of the total revenues, respectively. The operator network achieved revenues of RMB 58.88 billion; the government business achieved revenues of RMB 8.90 billion; and the consumer business achieved revenues of RMB 33.45 billion.

In 2015, ZTE's revenue just exceeded 100 billion yuan

In 2015, ZTE achieved operating revenue of RMB 100.825 billion, up 23.76% year-on-year, and net profit attributable to ordinary shareholders of the listed company was RMB 3.778 billion, up 43.48% year-on-year. ZTE announced in a news release that this was the first time that ZTE's revenue exceeded RMB 100 billion, and "net profit also reached a historical high."

Compared with the 2016 financial report, it is not difficult to find that ZTE's core business and layout methods have always been the main source of revenue. ZTE named this strategy "M-ICT". That is, focusing on "operator market, government and enterprise market, consumer market" and making layouts around "emerging fields". 2015 was the first year of ZTE's M-ICT strategy implementation. The group's operator network business achieved operating income of RMB 57.22 billion; government and enterprise business achieved operating income of RMB 10.50 billion; and consumer business achieved operating income of RMB 32.47 billion.

In troubled times, the penalty agreement reached between ZTE and BIS has come into effect

On the evening of March 7, 2017, ZTE announced that it had reached a settlement with the US government regarding the US government's export control investigation. As part of the settlement, ZTE agreed to pay $890 million in criminal and civil fines. In addition, a $300 million fine to the US Department of Commerce's Bureau of Industry and Security was suspended. Whether to pay depends on the company's compliance with the agreement and continued acceptance of independent compliance supervision and audits over the next seven years.

As ZTE reached a settlement agreement with relevant US government departments and accrued approximately US$892 million in related losses, the net loss attributable to the company's common shareholders was RMB 2.36 billion in 2016. Excluding this accrued loss, the net profit attributable to the listed company's common shareholders was RMB 3.83 billion, a year-on-year increase of 19.2%.

5G business is the core, mobile phone business performance is mediocre, and there is a clear gap in revenue at home and abroad

According to the annual report, ZTE's Pre5G product series has been gradually put into commercial use, helping global operators solve the problem of spectrum efficiency improvement before 5G is officially commercialized, and effectively reducing network construction costs and achieving rapid deployment, which has been recognized by the industry. In addition, ZTE has deployed more than 40 Pre5G networks in 30 countries around the world, bringing first-mover advantages and favorable positions for future 5G commercialization.

ZTE has also actively participated in the formulation of 5G standards and achieved phased breakthroughs. It has also reached 5G cooperation agreements with the three major domestic operators, Deutsche Telekom, Telefonica, Japan's SoftBank, Korea Telecom, etc. At the beginning of this year, the company released a full range of 5G high and low frequency pre-commercial base station products, and announced that it will start 5G commercial pre-deployment in the third quarter of 2018 and achieve large-scale commercial deployment of 5G in the first quarter of 2019.

Consumers are most aware of ZTE's mobile phone business. In fact, mobile phone business is not ZTE's core business. In particular, the domestic mobile phone business accounts for a small proportion of the company's overall revenue. The company's main revenue comes from operator network equipment, and the company's R&D investment is mainly in 5G, SDN, chips and other aspects.

The annual report mentioned that in terms of mobile phone terminals, ZTE's market is mainly overseas, with a market share of 4th in North America; 5th in Europe; Russia and Australia are in the top three respectively; Mexico, Turkey, South Africa and other developing countries are ranked fifth. Related media reports also confirmed this. According to the Russian newspaper "News", from June to July 2016, ZTE's smartphone sales in the Russian market rose to third place, and its market share in July was only 0.1 percentage point behind Apple's mobile phones. In these two months, ZTE's mobile phone market share in Russia was 8.9% and 9.1% respectively. ZTE mobile phones are also quite eye-catching in the US market, ranking fourth, second only to Apple, Samsung and LG.

ZTE's performance in the domestic market is very poor. In the first half of 2016, its domestic market shipments were 2.968 million units, which was behind the young Xiaolajiao and 360, ranking 15th. Huawei, which was on par with ZTE, sold 43.77 million units in the same period, 15 times that of ZTE. Apart from Huawei, OPPO and vivo's domestic sales were 29.02 million and 25.55 million respectively, which were also far ahead of ZTE.

Operators are the key to success and failure. The gap between ZTE's mobile phone business at home and abroad may further widen.

The high degree of bundling with operators can be said to be the biggest reason for ZTE's continued growth in North America. This model is the most common and effective way of development overseas. This is because there is an important feature in the North American market, that is, more than 90% of smartphones are sold through operator channels. Even if users buy mobile phones through large distributors, they will eventually be bundled with the operator's package.

The complicated domestic environment has determined that this model will become increasingly ineffective. Although Huawei's mobile phones had a large shipment volume before, its products also mainly relied on operator channels. Later, Huawei's mobile phone business cut off the low-end phone business and spent its main energy on flagship phones. After several years of internal training, it achieved results. Today, Huawei's Mate series and P series have been a great success, gaining a firm foothold in the mid-to-high-end market, and its shipment volume far exceeds that of ZTE.

ZTE's current flagship Tianji series aims to establish a high-end business image and has also achieved considerable results overseas. It has been launched in important global markets including the United States, Europe, and Asia, including China, and has been used and praised by politicians from many countries. 30 million BLADE series smartphones have been sold worldwide. As a popular product, Blade V8 shined at the entire MWC site and won the evaluation of "MWC2017 Best Smartphone" by foreign media. However, the two series of mobile phones have received mediocre response in China, and the attention is far less than that of Xiaomi, Huami, and OV. The design and configuration of the mobile phones themselves are not favored by consumers compared with the star phones in China. In Ruchi's opinion, the domestic and overseas market environment and ZTE's own positioning will further widen the gap between domestic and overseas mobile phone businesses, and this trend is difficult to avoid.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.