In the evening of February 28, ZTE (000063.SZ) released its 2024 annual financial report. During the reporting period, the company achieved revenue of 121.3 billion yuan; net profit attributable to shareholders of listed company was 8.42 billion yuan; net profit after deducting non-recurring gains and losses was 6.18 billion yuan; and net operating cash flow was 11.48 billion yuan.

Among them, operator network business revenue was 70.327 billion yuan, a year-on-year decrease of 15.02%.

To be honest, I'm not surprised by this data.

China's operator network market reached its peak as early as 20 years ago. Even giants like ZTE and Huawei can only maintain stability or slight growth in good years, which is considered good performance.

In 2024, as 5G construction entered a mature stage and AI drove sudden changes in industrial structure, the three major operators significantly reduced their capital expenditures, especially 5G investments, which fell by more than 20% year-on-year. Under this trend, the performance of major global head communications equipment manufacturers has been significantly affected.

For example, Nokia's annual net sales fell by 9% year-on-year; Ericsson's sales fell by 5% year-on-year. If the strongly growing North American market is excluded, other markets are even worse. In addition, companies such as AsiaInfo and Stratergy & Technology that provide IT support for operators were also generally in distress last year.

Now, ZTE's financial report data once again proves that everyone must accelerate their transformation and create a new pie.

Fortunately, facing the accelerated changes in the industry situation, ZTE's innovative transformation by embracing the "second curve" and AI has already shown results.

1

Behind 60% and 40%: The "Second Curve" Has Shown Remarkable Results

The most noteworthy data in ZTE's 2024 performance are the two percentages of 60% and 40%.

They represent the year-on-year revenue growth rates achieved by ZTE's domestic government and enterprise business and mobile phone business in 2024.

As we all know, ZTE's business mainly covers three major segments: operators, government and enterprise, and consumers.

Among them, the operator business accounts for a large proportion of ZTE's revenue, but this market has long been in a state of saturated competition and is now under constant pressure.

Therefore, in recent years, ZTE has been actively promoting business transformation, hoping to drive rapid growth in overall performance through the "second curve" represented by government and enterprise, terminals, and new businesses.

In 2024, this transformation has shown results.

In the government and enterprise business, ZTE effectively broke through head customers in industries such as the Internet, finance, and power, with business revenue increasing by 36.7% year-on-year. Among them, the growth rate of domestic government and enterprise business reached nearly 60%.

In the consumer business, ZTE took the lead in deploying the "AI for All" all-scenario smart ecosystem and a full range of multi-form AI terminals, with revenue increasing by 16.1% year-on-year. Among them, the annual shipment volume of home products exceeded 100 million units, maintaining the global first market share for four consecutive years. The 5G FWA&MBB market share remained the global first, and the annual shipment volumes of FTTR and mobile internet products both exceeded 10 million units. Cloud computer annual sales exceeded 1.5 million units, and mobile phone product revenue increased by more than 40% year-on-year.

Overall, in 2019, the proportions of ZTE's operator, government and enterprise, and consumer businesses were 73%, 17%, and 10%, respectively, while in 2024, they have changed to 58%, 15.3%, and 26.7%.

These data all mean that ZTE's "second curve" transformation strategy has successfully opened up the situation and is gradually ushering in a harvest period.

For example, mobile phones are the most competitive market in the consumer electronics field, and 2024 was a "year of chaos" for many top brands with dismal performance. However, ZTE mobile phones achieved rapid growth far exceeding the industry average (8%), which powerfully proves the continuous improvement of ZTE's market competitiveness in the "second curve".

2

Embracing AI: Accelerating the Transformation from "Connected" to "Connected + Computing Power"

Whether it is the economic situation or technological changes, 2024 is the starting point of a new cycle.

This year, innovations and changes such as large models, 5G-A, robots, and low-altitude economy surged, and a large number of new technologies, applications, and business formats brought tremendous opportunities and challenges.

Especially AI, it has become the competitive high ground of a new round of technological revolution and industrial transformation and will become the main engine driving the growth of the ICT industry in the next 3-5 years. For example, in the operator business field, in 2024, the investment focus of telecommunication operators is gradually shifting to emerging areas such as AI and computing power networks; in the government and enterprise business, enterprises in various industries are also increasing their investment in computing power, algorithms, and data; in the consumer business field, AI mobile phones and AI terminals have become new growth engines.

From the financial report information, in 2024, while consolidating its position in the network industry, ZTE also actively embraced the AI wave, focused on the main channel of computing power, and accelerated its transformation from "fully connected" to "connected + computing power".

Facing the AI wave, ZTE has made AI one of its core strategies, deeply integrated AI technology with ICT facilities around the main channel of intelligent computing, launched end-to-end AI infrastructure covering cloud, network, edge, and terminal, built an AI-native network, and provided full-stack and full-scenario intelligent computing solutions covering "computing power, network, capability, intelligence, application, and terminal" to help customers create the most cost-effective AI applications.

It is worth noting that the development of AI is highly dependent on high-quality networks, data, algorithmic frameworks, and computing power resources. ZTE has complete, end-to-end full-stack products and comprehensive solutions in the ICT industry, as well as sufficient technical reserves and ICT industry experience, thereby possessing the most critical capabilities and resources in the era of scarce computing power.

In the field of intelligent computing, based on the common pain point of high computing power costs, ZTE proposed the core proposition of "open decoupling, network-enhanced computing, and simultaneous training and inference" and launched a full range of products including computing, storage, network, and data centers to build a diversified and highly efficient intelligent computing resource pool and support comprehensive open decoupling to help enterprises achieve on-demand resource allocation.

In terms of infrastructure, ZTE has launched a full range of intelligent computing products and solutions such as training servers, inference servers, high-performance storage, AiCube training and inference all-in-one machines, and high-speed lossless switches, as well as 400GE/800GE data center switches that support GPU training clusters at the ten-thousand card level. These can not only meet the needs of different industries and scenarios but also provide optimal-cost intelligent computing power deployment and implementation.

In the field of large models, based on its self-developed Nebula series of large models, ZTE cooperates with external models such as China Telecom's Xingchen large model and China Mobile's Jiutian large model to actively empower various industry applications. Currently, it has created a series of digital and intelligent benchmark projects in 18 industries such as industrial manufacturing, water conservancy, and urban lifelines, realizing the accelerated landing and value realization of vertical scenarios of "AI+".

In the field of terminal products, based on the strategic positioning of "All for AI", ZTE has also quickly completed the comprehensive empowerment of AI to its smart products. Whether it is the hundred-yuan AI smartphone nubia Xiaoniu, the first 5G+AI glasses-free 3D tablet nubia Pad 3D II, the AI glasses-free 3D mobile phone ZTE Yuanhang 3D, or the first batch of mobile phones globally to access DeepSeek-R1, the nubia Z70 Ultra, as well as the RedMagic gaming mobile phone, which is the global sales champion in the vertical category, they are widely praised by users.

In terms of organizational innovation, ZTE uses AI to comprehensively accelerate organizational intelligence upgrades, builds an assembly-type R&D architecture of "chip + complete machine + large model" and a flexible marketing architecture of "large enterprise + small team" to achieve capability sharing, scenario rapid matching, and agile iteration.

Overall, as an ICT infrastructure service provider, ZTE focuses on solving two key needs for users: first, reducing the unit cost of computing power to make it affordable for enterprises; second, building a more open and prosperous AI cloud-native ecosystem to achieve a certain degree of decoupling between industry applications and different intelligent computing frameworks, enabling enterprises to make good use of computing power.

The bigger the ship, the harder it is to turn around. For a giant like ZTE, which has business operations in more than 160 countries and regions and serves more than a quarter of the world's population, such a firm decision to transform and such efficient transformation actions to continuously adapt to market changes and technological progress are very rare and successful.

From the financial report data, ZTE's "connected + computing power" transformation by embracing AI has also been positively affirmed by the market. For example, one of the main reasons for the 60% high-speed growth of domestic government and enterprise business is the contribution of server and storage business.

3

Striving for New Blue Oceans: Jointly Building an AI Ecosystem

Before the release of this financial report, ZTE just celebrated its 40th anniversary.

Looking back, from breaking the overseas monopoly in the era of "Juda Zhonghua" to becoming a "digital economy road builder" in the new era, from facing the darkest moment of extreme suppression to emerging from the shadows and regaining glory, in these 40 years, ZTE has gone through storms and cycles, grasping round after round of transformation opportunities with years of hard work, and overcoming arduous challenges time and again with perseverance.

From 2019 to 2024, ZTE's revenue achieved a compound annual growth rate of 6.0%, higher than that of international communications equipment giants Ericsson and Nokia during the same period. During this period, ZTE's revenue share relative to Ericsson and Nokia also significantly increased, from 61% and 52% to 75% and 84%, respectively.

At the same time, no matter how difficult the situation, ZTE has never stopped its pressure-type R&D investment. With long-term adherence to independent R&D of core technologies, it has consolidated the foundation for innovative development. From 2019 to 2024, the cumulative R&D expenditure over six years reached 117.07 billion yuan. Among them, in 2024 alone, 24.03 billion yuan was invested in R&D, accounting for about 20% of revenue.

As of December 31, 2024, ZTE had cumulatively applied for 93,000 global patents and been granted 48,000 global patents over the years. In the field of chips, it has about 5,500 patent applications, of which more than 2,000 have been granted. In the field of AI, it has more than 5,000 patent applications, nearly half of which have been granted.

Now, standing at the starting point of a new cycle, ZTE is still facing challenges and striving to be the first.

Looking ahead, AI is about to reconstruct industrial paradigms and open up trillion-level incremental space for the intelligent economy. As a leading global comprehensive ICT leader, ZTE, which is accelerating its innovative transformation, will also use "connected + computing power" as a fulcrum to lay out intelligent computing, embrace AI, accelerate the construction of an AI-native capability system, strengthen its core capabilities of "network, computing, terminal, and capability", empower the intelligent upgrades of thousands of industries, and jointly build an inclusive and innovative AI ecosystem.

This will be a new blue ocean that ZTE is opening up for the next 40 years.

As Li Zixue, Chairman of ZTE, stated in the annual report, "Looking ahead to 2025, the external environment remains complex and volatile, and a new round of technological revolution and industrial transformation continues to deepen, with AI becoming the competitive high ground. Opportunities and challenges coexist. We will maintain strategic focus, accelerate our expansion and transformation towards 'connected + computing power', and quickly open up a new situation."