The dawn of 5G-A is upon us, and it's heralding a new era of telecommunications that is set to significantly impact various sectorsIn 2024, China Mobile has officially rolled out its commercial 5G-A network, with ambitious plans to deploy it in 300 cities throughout the yearShanghai Telecom is leading the charge with over 13,000 5G-A base stations already in place, while China Unicom has made substantial progress by implementing crucial technologies like RedCap and carrier aggregation in over a hundred citiesThis swift rollout of enhanced 5G capabilities isn't just a technical advancement; it lays the foundation for the booming low-altitude economy, which is projected to soar into a trillion-dollar market.

The integration of the new sensory technology within 5G-A dramatically elevates drone operations by enabling precise tracking of flight paths, speeds, and geographical coordinatesThis innovation not only ensures safer airspace but also assists in managing unauthorized drone activitiesAs we stand on the brink of unleashing the full potential of the low-altitude economy, the implications for associated businesses indicate potential revenue generation in the billionsProminent players in the ICT sector, including giants like Huawei, ZTE, Unisoc, Inspur, and FiberHome, are poised to reap substantial benefits in this transformative landscape.

Among these, ZTE, often mentioned alongside Huawei, appears to be a key beneficiary of the 5G-A waveBy the end of the third quarter of 2024, ZTE clinched orders worth an astonishing 11.8 billion yuan, with its market capitalization skyrocketing from 100 billion yuan at the start of 2024 to an impressive 150 billion yuan todayThis resurgence raises questions about ZTE's revival after years of relative dormancy in the telecom sector.

Behind ZTE's remarkable ascent lies a profound foundation supported by its innovative product offerings and a robust market strategyEstablished in 1985, ZTE has evolved into a powerhouse, deriving a significant 70% of its revenue from operator network services, primarily catering to major telecom operators such as China Mobile

Advertisements

Its stature in this field cannot be understated, as it holds the fourth-largest market share globally and is the second in China, fiercely competing with Huawei.

The telecom operators' market is characterized by high concentration, with the top five players accounting for an overwhelming 95% of the sectorAs a testament to ZTE's dominance, it maintains a significant share of these lucrative contractsNevertheless, with the rapid advancement and normalization of network infrastructure, ZTE's reliance on operator business has shifted, declining from 73% in 2019 to around 60% by mid-2024. This begs the question: Is ZTE in trouble? On the contrary, the cyclical nature of operator network services suggests that ZTE is simply undergoing a transformation.

As the transition from 4G to 5G generated an explosion in orders, the same is now true for the evolving 5G-A networkThe need for more extensive and higher-performing base stations to accommodate 5G-A is palpableAs echoed by Chen Jialiang, chairman of China Mobile, the company plans to roll out 5G-A across over 300 cities in 2024. ZTE is remarkably well-prepared for this transition, actively contributing to the establishment of 5G-A standards while also innovating with cutting-edge technologies, such as a 130GBd high-performance optical component and 400G QPSK technologyThese advancements are not only enhancing network signal transmission speeds and distances but are also quintessential to meeting the demands of 5G-A.

Furthermore, ZTE's achievements in the 400G OTN sector are noteworthyFor instance, its bids in this space rank just below Huawei, with the added incentive that the unit price per 5G-A base station is three times that of conventional 5G unitsThese economic factors position ZTE's core business on an upward trajectoryThe company continues to ramp up its focus on research and development, prioritizing innovative pursuits that are cementing it as a competitive leader.

This competitive edge is further enhanced by ZTE’s strategic emphasis on high-performance computing and ICT chip technologies

Advertisements

In the first three quarters of 2024, ZTE dramatically increased its R&D spending, underscoring its commitment to innovationThe company's R&D outlay surged from 12.5 billion yuan in 2019 to an impressive 25.3 billion yuan in 2023, with its R&D intensity soaring to 20% from 14% during this period.

One standout area of growth for ZTE has been its AI server capabilitiesWith substantial improvements made in the R8500G5 high-performance server – reportedly seeing a tenfold increase in AI proficiency – ZTE is set to emerge in the AI market as a formidable competitorAdditionally, its R6930G3 AI server can now deliver an entirely controllable proprietary software-hardware ecosystem, paving the way for broader applications across various sectors.

As ZTE capitalizes on its high-performance AI servers, it also has made significant strides in the increasingly competitive chip sectorIts subsidiary, ZTE Microelectronics, specializes in designing advanced ICT chips, achieving impressive production rates for its 28nm and advanced process chipsIn fact, ZTE's recent success in mass producing 7nm chips has led to a notable increase in processing efficiency, creating four times the computational power over previous iterations.

This momentum has yielded concrete resultsIn the period from 2019 to the third quarter of 2024, ZTE's proportion of revenue derived from government and corporate projects has increased to 25.63%, a clear testament to its expanding influenceThe consumer segment has also seen growth, climbing from 10.09% to 14.68%. These figures reflect ZTE's enhanced technological barriers, which not only increase value but also manifest in improved profit margins—climbing to 40.43% from 37.17% in the same timeframe.

Consequently, ZTE's overall performance is fostering stability through growth in revenue and net profit, affirming positive signals of recovery within the organizationReportedly, the company's revenue surpassed 90 billion yuan, while its net profit hit an impressive 8 billion yuan in the same period, both indicating healthy year-over-year growth despite existing pressures from short-term loans and bond liabilities.

Ultimately, while ZTE navigates financial challenges amid its robust R&D endeavors, the strategic focus on maintaining a manageable debt ratio is pivotal for sustained growth

Advertisements

Advertisements

Advertisements