Bloomberg News

ZTE Sees ‘Big Potential’ in Computing Service for Carriers

November 25, 2011

(Updates with analyst’s comment from seventh paragraph.)

Nov. 17 (Bloomberg) -- ZTE Corp., China’s second-largest maker of phone equipment, sees “big potential” in offering computer services to mobile-phone companies, President Shi Lirong said.

ZTE has signed up the nation’s two largest carriers, China Mobile Ltd. and China Unicom (Hong Kong) Ltd., for a “virtual office” and has a total of 8 million users for its unified communication system, Shi said in a speech at the GSMA Mobile Asia Congress in Hong Kong today.

Cloud computing will account for one-third of the Shenzhen- based company’s sales within three to five years, it estimated in May, as Chairman Hou Weigui diversifies ZTE’s business beyond phone-network equipment. Selling computer services gives ZTE a new source of revenue from existing network-equipment customers who seek ways to generate more sales from the “pipes” that carry phone calls and data, Shi said.

“There is still very big potential for both operators and vendors,” Shi said today. “We still have this pipe optimization and monetization.”

ZTE rose as much as 8 percent, the biggest intraday gain in more than a month, to HK$24.30 in Hong Kong trading after Shi made his remarks. The stock, which traded at HK$23.60 as of 11:59 a.m., fell as much as 2 percent earlier this morning.

The company introduced its first cloud-computing operating system in Beijing on May 18 and expects sales to exceed $2 billion this year, ZTE said at the time.

“ZTE is very experienced in carrier networks and they want to use that to enter the enterprise market,” Michael Li, an analyst with Mirae Asset Securities in Hong Kong who rates the shares “hold” and doesn’t own any, said in an interview today. “They have an opportunity but it’s going to be hard, because they face a lot of entrenched players.”

ZTE’s move puts it in competition with its larger domestic rival, Huawei Technologies Co., as well as global players like Cisco Systems Inc., Li said. ZTE has “a long way to go” to be globally competitive in enterprise computing, he said.

ZTE’s Shi said the company is “just starting” by selling such services to its existing customers including China Mobile and China Unicom. In the first phase of the China Mobile project there were a total of 1,500 users supported, while the second phase will add 15,000, Shi said.

Revenue from the China Mobile project is relatively small at around 30 million yuan currently, Mirae’s Li estimates.

Carriers will expand the program because it results in cost savings on hardware, software and power consumption, ZTE’s Shi said.

“This is a good solution for big enterprises because it’s easy for them to centralize management,” Shi said. “Thousands of users can share the same storage and computing power.”

ZTE is also looking to generate computing-services sales in the areas of transportation, energy, finance, education and government, Shi said today. The company has already sold a system to the city of Chongqing that can monitor traffic flows and track violations and annual inspection records, he said.

Sales of such systems will increase in the next three years, Shi said.

--Edmond Lococo. Editors: Terje Langeland, Dave McCombs

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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