Today's ZTE is no longer the ZTE we used to know. Many people lament the sanctions imposed on ZTE years ago, but Huawei, also sanctioned, has evolved its HarmonyOS ecosystem against all odds. What can ZTE offer?

"ZTE, ZTE, the rejuvenation of China." If we judge ZTE's current influence based on this slogan, it somewhat dishonors the name.

People often lament ZTE's sanctions by the US years ago but overlook its hesitation in technological innovation in recent years. In contrast, Huawei, also sanctioned and a leading player in the telecom industry, has invested heavily in R&D and become stronger in the HarmonyOS ecosystem and new energy vehicles.

ZTE and Huawei have long been considered the top two players in the telecom sector, but their gap has widened significantly over the years. This disparity is evident in their financial performance.

ZTE's financial report shows that in the first half of 2024, it generated a cumulative revenue of 62.49 billion yuan, a slight increase of 2.9% year-on-year, with a net profit attributable to shareholders of 5.73 billion yuan, a slight increase of 4.8% year-on-year. Operating cash flow was 7 billion yuan, up 8.9% year-on-year.

At this growth rate, ZTE's annual revenue may fail to surpass 150 billion yuan. In contrast, Huawei's rotating chairman Hu Houkun revealed in the 2024 New Year message that Huawei achieved a sales target of 700 billion yuan in 2023 and aims for 800 billion yuan in 2024.

The comparison is stark.

As ZTE's revenue growth is not significant, management has resorted to layoffs to maintain profits.

3,879 employees less in the first half

ZTE's financial report shows that as of the first half of 2024, it had 68,214 employees with a total payroll of 17.1 billion yuan, translating to an average salary of 41,800 yuan per employee.

However, ZTE had 72,093 employees at the end of 2023, indicating a reduction of 3,879 employees in just six months. If this trend continues, ZTE would lose 21 employees daily.

In comparison, ZTE had 74,811 employees at the end of 2022, a decrease of 2,718 employees over the year. The 3,879 employee reduction in the first half of 2024 is significantly higher than normal turnover, suggesting optimization and downsizing measures.

Since 2023, rumors of ZTE layoffs have persisted, initially affecting individual departments like the Wireless Research Institute and terminals, but later spreading across the entire company.

Interestingly, global telecom giants have also resorted to layoffs. Ericsson laid off 8,500 employees in 2023, while Cisco reduced its workforce by nearly 10,000 in 2024, according to Layoffs.org.

The era of massive expansion is over. Companies must cut costs and increase efficiency to survive and develop, often leading to layoffs.

'Survival is our primary goal. We will shrink or shut down marginal businesses and spread the sense of urgency to everyone.' Ren Zhengfei's 'Winter Is Coming' speech applies to ZTE today.

Founded in 1985 and listed on the capital market in 1997, ZTE is a pivotal player in China's telecom history. However, it has yet to fully recover from US sanctions.

'The moneybags' are spending more cautiously

ZTE's core business is operator networks, contributing 37.296 billion yuan to its total revenue of 62.49 billion yuan in the first half of 2024, accounting for over 50%. Its other two businesses, enterprise solutions and consumer business, contributed 25.191 billion yuan combined.

While ZTE's operator network business revenue declined by 8.61%, it maintained its gross margin.

Telecom operators are also reducing capital expenditures and centralized procurement. China Telecom reported a 2% year-on-year decrease in mobile network investment to 31.5 billion yuan and a 16% decline in broadband network investment to 15.5 billion yuan in 2023.

In the 2023-2024 centralized procurement of AI computing power servers by China Telecom, ZTE won only 538 million yuan out of 8.4 billion yuan, accounting for 6.4%. ZTE did not win any bids for liquid-cooled or domestically produced servers.

China Unicom has stated that 2020-2022 marked the peak of 5G capital expenditures, with investments expected to decline thereafter.

China Mobile echoed this sentiment, indicating that its overall capital expenditures will gradually decrease over the next two years.

As ZTE's most profitable and largest revenue contributor, its operator network business has explored secondary revenue streams. However, with most revenue and profit still dependent on operator business, avoiding the impact of declining operator investments is challenging.