ZTE Sees Computer Services Sales Jump in Next Few Years

ZTE Corp. (763) said it projects sales growth exceeding 50 percent annually for the next few years from computing services for governments and businesses as the company further expands beyond making phone network equipment.

Sales of computer services to governments and businesses rose 90 percent to 8.8 billion yuan ($1.4 billion) in 2011, and jumped 70 percent in the first six months of this year, Hu Jian, vice president of ZTE’s government and enterprise solutions unit, said in an interview in Beijing today.

ZTE today announced the start of commercial service for China’s first fourth-generation wireless data network for the Beijing municipal government as part of its expansion into computing services. ZTE is expanding in mobile devices and cloud computing where sales growth is faster than its traditional phone equipment business as the pace of new mobile network rollouts slows.

“The 70 percent revenue growth for the first half of 2012 would make this one of the fastest growing segments of the company,” said Lisa Soh, a Hong Kong-based analyst with Macquarie Group Ltd. “This does appear to be a source of profit growth for ZTE.”

ZTE climbed 2.8 percent to close at HK$10.86 in Hong Kong trading, the highest level since Aug. 28. The benchmark Hang Seng Index fell 0.1 percent. The stock has lost 55 percent this year, while the benchmark has added 8.8 percent.

The company last month reported first-half sales rose 15 percent to 42.6 billion yuan. The postponement of some Chinese carrier network contracts, as well as foreign exchange losses, led ZTE to post an 85 percent drop in second-quarter profit.

Business Computing

The company in May 2011 forecast cloud computing would account for one-third of ZTE’s sales within three to five years.

“We can continue high speed growth in this area for the next few years at least,” Hu said today of the government and business computing services unit he helps manage.

The company started its computing services push with existing customers of network equipment gear such as China Mobile Ltd. (941) and China Unicom (Hong Kong) Ltd. (762) Now, ZTE is seeking out projects from governments and businesses to use computing power to improve areas including transportation, energy, health care and education. The company is using “icity” as its brand for the new services.

“ZTE has made a lot of effort in the corporate market, reducing reliance on carriers,” Steven Liu, a Hong Kong-based analyst with Standard Chartered Bank, wrote in an e-mail today. “I think it’s still small, less than 15 percent of revenue.”

The 4G data service the company announced today in Beijing runs the TD-LTE standard which offers speeds 10 times faster than current 3G networks, the Shenzhen-based company said in a statement. ZTE began trials of the Beijing data network at the end of last year and today announced the beginning of commercial service.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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