5G technology has successfully entered the second stage of its development, and in this stage, 5G-A has undoubtedly become the focus of attention in the industry. 5G-A not only represents the further deepening and expansion of 5G technology, but also indicates a new revolution in the future communication field.
The core feature of 5G-A is its air-space-ground integrated design dominated by 5G NTN technology, which seamlessly connects communication networks in various dimensions such as sky, ground and deep sea, forming a truly global coverage and seamless communication network. This vision of "ubiquitous connectivity, intelligent connection of everything" is exactly what 5G-A technology is pursuing, which will revolutionize the way people communicate and make information transmission more efficient and convenient.
Among them, NTN technology, as a breakthrough evolution technology in the field of satellite communication, undoubtedly provides strong support for the realization of 5G-A. NTN technology enables smartphones and IoT terminals to connect directly to satellites, enabling long-range and wide-coverage communications. The emergence of this technology not only greatly expands the coverage of communications, but also makes the era of "consumer-grade" satellite communications possible.
When it comes to 5G and satellite communications, Huawei is undoubtedly the best in people's minds. The tech giant's influence in the global communications sector is obvious to all, and every technological breakthrough is enough to attract widespread attention in the industry.
In April 2024, Huawei once again stood at the forefront of science and technology, and its latest breakthrough in the field of satellite communications is remarkable. The advent of the Pura 70 series of mobile phones marks that the mobile phones can support Beidou satellite image transmission, which is undoubtedly a revolutionary innovation. This feature provides users with a valuable means of communication in remote areas, wilderness areas with no signal coverage, or in emergency situations where communication is interrupted due to a natural disaster. Even in the absence of signal and network, users can keep in touch with the outside world by sending picture messages, which undoubtedly greatly enhances the reliability and convenience of communication.
The technology of direct connection of mobile phones to satellites is expected to be the key to solving the problem of insufficient coverage of terrestrial communication networks. It can not only make up for the shortcomings of the ground communication network, but also realize the grand vision of air-space-ground-sea integrated communication. Against this backdrop, Huawei's technological breakthroughs have undoubtedly injected new vitality into the development of the entire industry.
Compared with Huawei, ZTE is relatively low-key, but its efforts and achievements in the field of satellite communications cannot be ignored. In 2023, ZTE has made a series of breakthroughs in the field of satellite communications. From completing the verification of the first 5G IoT NTN mobile phone directly connected to the satellite laboratory in China, to realizing the first 5G NTN verification in China's marine scenario, to a series of marine and emergency communication scenario landing tests in Zhoushan, Zhejiang, ZTE has continuously promoted the development and application of satellite communication technology.
In the future, with the continuous maturity of NTN technology and the expansion of application scenarios, people's lives will become more convenient. Whether it is on the top of a snow-capped mountain, deep in the desert, or an explorer on an uninhabited island, they will be able to enjoy efficient and stable communication services.
Of course, ZTE's focus is much more than that. Judging from the financial report, ZTE's overall performance remained stable, with year-on-year growth in operating income and net profit, which is behind ZTE's continuous efforts and accumulation in technological innovation and market expansion. It is believed that in the future, ZTE will continue to play an important role in the field of communications and contribute more to the development of human society.
ZTE's gross profit margin and net profit margin in the first quarter of 2024 were 42.02% and 9.03%, respectively.
ZTE's gross profit margin, net profit margin, and ROE are higher than Ruijie Network, Unisplendour, and Fiberhome Communications.
In the first quarter of 2024, ZTE's R&D expense ratio was 20.85%, the management expense ratio was 3.72%, and the sales expense ratio was 6.67%, down from 2023
From the perspective of R&D expenses alone, ZTE's investment in the field of scientific and technological innovation can be described as unstingy, showing the company's firm determination and strong strength in technological innovation. Back in 2019, ZTE's investment in R&D was still 12 billion yuan, which was already a lot of money, but in 2023, this figure has doubled, jumping to a staggering 25.29 billion yuan. This huge increase not only reflects ZTE's continuous efforts in technology research and development, but also demonstrates its competitive position and strength in the global communications industry.
It is worth noting that ZTE's investment in R&D is not blind, but has clear strategic goals and directions. R&D investment of 25.29 billion yuan accounts for 20.35% of the company's operating income, which is the best in the industry, showing that ZTE attaches great importance to technology research and development. At the same time, compared with the same period last year, this proportion has increased by 2.78%, which is undoubtedly a further confirmation of ZTE's firm pace on the road of scientific and technological innovation.
Of course, ZTE's efforts in research and development have also paid off handsomely. As of 2023, ZTE has about 89,500 global patent applications, which not only demonstrates the company's rich achievements in technology research and development, but also reflects its technological leadership in the global communications industry. At the same time, about 45,000 patents have been authorized worldwide over the years, which not only provide ZTE with solid technical support, but also win more voice and advantages in the global market competition.
In the 2023 PCT international patent application ranking, ZTE once again demonstrated its scientific and technological strength with its outstanding innovation capabilities. This year, ZTE applied for a total of 1,738 PCT international patents, which not only demonstrates its profound heritage in technology research and development, but also reflects its emphasis on intellectual property protection.
Among many Chinese companies, ZTE has the highest number of patent applications, ranking 11th after BOE, CATL and OPPO. Behind this achievement is the result of ZTE's adherence to the innovation-driven development strategy, continuous improvement of independent innovation capabilities, and strengthening technology research and development and intellectual property protection over the years.
It is worth mentioning that ZTE not only has a considerable number of patent applications, but also a high quality. These patents cover many fields such as communication technology, intelligent terminals, and cloud computing, fully demonstrating ZTE's technological advantages and innovation capabilities in many fields. The application and authorization of these patents not only provide legal protection for ZTE, but also win more voice and advantages for ZTE in the market competition.
Looking at ZTE's cash flow, this is also one of the important indicators to measure the operating status of a company. In 2023, ZTE's net cash flow from operating activities reached a record high of 17.41 billion yuan, which not only shows the company's stable operating ability, but also reflects its good level of capital operation. In addition to the impact of the market environment in 2018, the company's operating cash flow has maintained a positive inflow from 2017 to the first quarter of 2024, which fully proves ZTE's professionalism and efficiency in capital management and application.
So, how can we discuss ZTE's positioning in the market and its future growth potential in detail and depth?
ZTE, an enterprise that has been deeply involved in the communications field for many years, although it has not been comparable to giants such as Huawei, Ericsson and Nokia in terms of revenue and profit, this does not mean that its strength and status are inferior. In fact, ZTE's position in the domestic market is still solid, and its technical strength and market share are at the forefront of the industry. At the same time, it is also a leader in the global communication equipment provider, ranking TOP4, which is enough to prove its important position in the global communication field.
Specifically, ZTE has made remarkable achievements in the field of 5G. Its 5G base station and 5G core network shipments have ranked second in the world for four consecutive years, with a market share of 31%, second only to Huawei. This data fully demonstrates ZTE's strong strength in 5G technology research and development, product manufacturing and market expansion. At the same time, ZTE's performance in the field of PON CPE is also excellent, with the world's largest shipment volume for three consecutive years, with a market share of 34.3%. This achievement not only demonstrates ZTE's leading position in the field of broadband access, but also lays a solid foundation for its future growth.
To talk about ZTE's growth potential, we must first have an in-depth understanding of its current business composition and strategic layout. As a leader in the communications industry, ZTE's business not only covers the traditional communication technology field, but also actively expands into the information technology field, forming a unique communication ICT business system.
In this business system, CT business and IT business complement each other and jointly promote the development of ZTE. Among them, the CT business, as the cornerstone of ZTE, accounts for the vast majority of the group's business, reaching an astonishing 90%. This segment covers key areas such as wireless access, wired access, core network and bearer network, providing ZTE with a stable revenue stream and market position.
However, ZTE is not satisfied with the status quo and actively seeks new growth points. Therefore, the IT business came into being and became the second curve of ZTE. This business covers IT infrastructure such as servers and storage, as well as digital transformation services such as 5G industry and automotive electronics, opening up a new space for ZTE's development.
With the deepening of digital transformation, the market demand for IT business continues to grow, bringing huge business opportunities to ZTE. By continuously increasing R&D investment and market expansion, ZTE has made significant progress in the IT business field, injecting new impetus into the company's continuous growth.
1. CT business: a pioneer in hardware support
The importance of CT services, as the cornerstone of operators' hardware support, is self-evident. In the vast world of the communications industry, ZTE, with its excellent technical strength and innovation capabilities, has provided a steady stream of solutions for the three industry giants, China Mobile, China Unicom, and China Telecom, and has become their indispensable partner. In 2023, 66% of ZTE's revenue will come from this, fully demonstrating its leading position in the industry.
If operators are regarded as the upstream of the industry, holding licenses and leading the trend, then equipment manufacturers like ZTE play the role of downstream doers and contribute to the development of the industry with practical actions. In 2024, the first year of 5G-A construction will begin, and China Mobile will take the lead in launching the world's largest 5G-A commercial network deployment and promote its application in more than 300 Chinese cities. This historic moment will undoubtedly bring unprecedented opportunities for ZTE and other equipment manufacturers.
With the acceleration of the commercialization of 5G-A, combined with the rapid development of cloud computing and artificial intelligence technologies, operators are facing huge business growth potential. At the same time, it also brings unprecedented new business and opportunities to the entire communications market. With its keen market insight and forward-looking technology layout, ZTE has proposed the B5G concept, which aims to support the seamless connection of 5G-A and 6G technologies and point out the direction for the future development of the industry.
It is worth mentioning that ZTE's synaesthesia integrated function has been successfully applied to the field of low-altitude economy. In April 2024, China Mobile and ZTE jointly completed the 5G-A synaesthesia integrated low-altitude scenario capability verification test. This test successfully verified test cases such as remote detection, electronic fence intrusion warning for low-altitude security, and route perception of Meituan takeaway drones, basically covering the whole business of low-altitude perception scenarios. The achievement of this achievement not only demonstrates ZTE's leading position in the field of synaesthesia integrated technology, but also provides strong technical support for the development of low-altitude economy.
2. Information technology (IT) field
ZTE has long set up a leading banner in the field of communication technology (CT), and now, the company is setting its sights on a broader field of information technology (IT) in order to seize the opportunity in the future technology competition. The IT field covers many important aspects such as data link, computing power, and large models, and ZTE is making an all-round layout to make breakthroughs in these key areas.
In the core field of computing power, ZTE has independently developed CPU chips and launched the "3+2+3" intelligent computing server solution by virtue of its profound technology accumulation. This solution not only fully meets the AI full-scenario application needs of various customers in various industries, but also achieves technical integration with international standards, including the industry's mainstream foreign X86 architecture CPU platform, domestic X86 architecture CPU platform, and ZFX CPU platform developed by ZTE, all of which can exert strong performance in this solution.
In the field of GPUs and large models, ZTE is also not far behind. The R6900 G5 server developed by the company can support up to 8 NVIDIA H20 NVLINK GPUs or 8 106OAM GPUs, providing powerful hardware support for large-scale data processing and deep learning. The launch of this server will undoubtedly greatly promote the layout and development of ZTE in the field of AI.
Looking ahead, ZTE will continue to increase its R&D investment in the IT field, especially in key areas such as computing power, GPUs, and large models. According to the company, in the first quarter of 2024, ZTE's AI servers have been shipped to operators and Internet companies, and intelligent computing projects related to 1000/10000 calorie clusters have been simultaneously expanded. The achievement of these achievements not only demonstrates ZTE's strength in the IT field, but also indicates that the company will be more confident in the future technology competition to reach new heights.
Finally, let's comprehensively sort out ZTE's development trend in the medium and long term in the future. In the tide of the AI era, ZTE's second-curve business with computing power as the core is ushering in unprecedented rapid growth opportunities. As the cornerstone of AI technology, the importance of computing power is self-evident. With its profound technology accumulation and forward-looking strategic vision, ZTE has made remarkable progress in the field of computing power, and is expected to shine in this field in the future.
To sum up, ZTE, driven by the AI era and the 5G-A era, is expected to usher in new growth points for its second and first curve businesses. This will provide a strong impetus for the steady growth of the company's performance. In the future, we have reason to believe that ZTE will continue to maintain its leading position in the industry and achieve more brilliant development achievements.