Text 丨 Sina Technology Zhou Wenmeng
Recently, ZTE released its performance report for the first quarter of 2024. According to the report, the company's annual operating income was 30.58 billion yuan, a year-on-year increase of 4.9%, net profit after deducting non-attributable to the parent company was 2.65 billion yuan, a year-on-year increase of 7.9%, and net operating cash flow reached 2.98 billion yuan, a year-on-year increase of 28.3%. It is worth noting that, according to the company, the government, enterprise and consumer businesses, whose growth was under pressure last year, have returned to the growth track.
Looking at ZTE's financial report for the first quarter of 2024, its operating income and net profit both increased year-on-year, and its overall operation remained stable. Behind this, the continuous rise in R&D investment, as well as the return to growth of government, enterprise and consumer business revenues, have become two highlights worth paying attention to.
In ZTE's business structure, three segments, consisting of operator networks, government and enterprise energy, and consumer sectors, are the company's main sources of revenue. In recent years, ZTE has adapted to the changes in its investment structure and accelerated its previous "full connection" business to "connection + computing power", intending to create a new second growth curve.
Behind the rising R&D investment, a large amount of funds have been invested in the "connection + computing power" business area that the company is actively building. According to reports, at present, ZTE's series products have been able to meet the needs of ultra-large-scale networking and model training of 10,000-level GPUs.
Government, enterprise, and consumer businesses returned to growth, and R&D investment doubled in four years
According to ZTE's financial report, as of the first quarter of 2024, the company's operating income was 30.58 billion yuan, a year-on-year increase of 4.9%, and the net profit after deducting non-attributable to the parent company was 2.65 billion yuan, a year-on-year increase of 7.9%. A welcome change is that this quarter, ZTE's government, enterprise and consumer businesses, whose growth was under pressure last year, have returned to the growth track.
According to ZTE, in terms of government and enterprise services, ZTE merged the operator market and the government and enterprise market last year to form a domestic market, while maintaining the competitiveness of traditional operators' network business, actively expanding emerging businesses in the field of cloud network and computing power, and rapidly cultivating second-curve products to help accelerate the expansion of domestic government and enterprise services. To this end, the company has also established a new business team to build a full-stack solution for industry applications based on all-optical networks and connections, adding capabilities such as video, AI, security, and cloud terminals, and conducting comprehensive business expansion in vertical fields such as education, parks, industrial manufacturing, and healthcare.
This series of adjustments has laid the foundation for the company's government and enterprise business to return to growth.
In addition, in terms of consumer business, ZTE has launched three smartphones with different levels and integrated AI technology, namely the Nubia Z60 Ultra Photographer Edition, Nubia Flip and Nubia Maverick, so that AI can benefit a wider range of people. At the same time, it also launched the world's first 5G+AI glasses-free 3D tablet nubia Pad 3D II. The frequent release of a number of new products has also opened up incremental space for business revenue growth.
However, while business revenue has increased, the company's spending on R&D investment has also maintained intensity.
According to ZTE's financial report, in the first quarter, the company's R&D expenses were 6.38 billion yuan, accounting for 20.9% of operating income.
According to Sina Technology statistics, in the past five years, ZTE's R&D investment intensity and intensity have continued to increase, both in terms of year-on-year growth rate and proportion of overall revenue. Among them, the R&D investment in 2019 was 12.55 billion yuan, a year-on-year increase of 15.06%, accounting for 13.8% of revenue, in 2020, the R&D investment was 14.797 billion yuan, a year-on-year increase of 17.92%, accounting for 14.59% of revenue, in 2021, the R&D investment was 18.8 billion yuan, a year-on-year increase of 27.08%, accounting for 16.42% of revenue, and in 2022, the R&D investment was 21.6 billion yuan, a year-on-year increase of 14%, accounting for 17.6% of revenue. In 2023, R&D investment will be 25.29 billion yuan, a year-on-year increase of 17%, accounting for 20.4% of revenue.
R&D investment has exceeded 10 billion yuan for five consecutive years, and at the same time, ZTE's R&D investment of 25.29 billion yuan in 2023 has doubled compared with ZTE's R&D investment of 12.55 billion yuan in 2019 and 25.29 billion yuan in 2023. In terms of quarters, the R&D investment of 6.38 billion yuan in the first quarter of 2024 will increase again compared with last year.
The company's business growth has been accompanied by a rapid increase in the company's spending on R&D.
The series of products have supported 10,000-calorie-level GPU training, and the second curve has accelerated expansion
At present, ZTE is implementing a "hyperbola" strategic combination. Among them, the first curve business mainly focuses on the communication track, including wireless access, wired access, core network, bearer network and other operator services, and the development is relatively stable, but the growth is slowing down. The second curve business, represented by computing power, mainly includes emerging businesses such as servers and storage, terminals, industrial digitalization, digital energy, and automotive electronics, and is currently in accelerated expansion.
In the first curve business field dominated by communications, ZTE should continue to maintain its leading position. According to relevant data, the shipment volume of 5G base stations and 5G core network has ranked second in the world for four consecutive years, RAN and 5G core network products have been rated as industry leaders, and the market share of 10G PON optical access products has ranked second in the world. At the same time, it continues to evolve innovative technologies and solutions such as 5G-A, all-optical networks, and new 5G applications, and cooperates with operators to carry out commercial verification and deployment in multiple scenarios such as 10 Gigabit experience, industrial field network, integrated synaesthesia computing, and RedCap.
In the field of the second growth curve dominated by computing power, the company is currently increasing investment in computing infrastructure, software platforms, large models and applications, and advocates open decoupling, software and hardware decoupling, training and deduction in the field of intelligent computing, building a prosperous AI ecosystem, and building an integrated computing power system with network modulation and strong computing.
According to reports, in terms of hardware infrastructure, the company has been able to provide end-to-end computing infrastructure solutions, covering all computing power fields and high-speed network interconnection fields of general computing and intelligent computing. In addition to general computing servers and data centers, 400G/800G backbone network transmission, the company has launched a fully decoupled full-stack intelligent computing solution for intelligent computing, and a series of products have been able to meet the needs of 10,000-calorie-level GPU ultra-large-scale networking and model training. In addition, in the field of AI large models, the company is adopting the "1+N+X" strategy, adopting the self-research and ecological cooperation model based on the Nebulas large model, pre-training "N" domain large models in the field knowledge increment, and then deriving "X" applications, realizing R&D efficiency improvement internally, and accelerating the digital and intelligent transformation of the industry externally with large model technology.
Under a series of layouts around "computing power", ZTE is extending its business scope from the communication field to the IT field, and then combining it with the most popular AI model to explore new business possibilities. According to ZTE, in the field of "computing power" business, in recent years, by increasing investment in server and storage products, it has achieved the top five shipments in the Chinese market.
It's just that for ZTE, behind the massive R&D investment to actively explore the second curve, although there are opportunities, it also faces new challenges. With the rise of a new round of artificial intelligence technology, enterprise groups represented by cloud manufacturers and domestic chips are also rapidly pouring into this field.