Core Insights - The rapid development of AI large models is creating significant transformation and growth opportunities for computing power industry chain manufacturers [1] - ZTE Corporation reported a revenue of 71.55 billion yuan for the first half of 2025, a year-on-year increase of 14.5%, with a net profit of 5.06 billion yuan [1] - The company is shifting its strategy from "connectivity" to "connectivity + computing power," with the second curve business showing significant growth [1][2] Revenue Breakdown - The revenue composition has shifted, with the operator business now accounting for 49% of total revenue, down from nearly 60%, while the enterprise business has increased to approximately 27% [1] - The second curve revenue, represented by computing power and terminal products, has grown nearly 100% year-on-year, making up over 35% of total revenue [1][3] Business Performance - The enterprise business achieved a remarkable growth rate of 109.9% year-on-year, while the consumer and operator network businesses remained stable [2] - In the domestic market, ZTE has made breakthroughs in key scenarios and provinces, while also expanding its international market presence [3] Computing Power Solutions - ZTE has developed a comprehensive intelligent computing solution covering various fields, including computing power, network, and applications [3] - The company leads in the domestic operator market for general computing servers and has secured significant contracts for data center switches [3] Consumer Business Growth - The consumer business saw a 7.6% year-on-year revenue increase, driven by smartphone and cloud computer sales [4] - The dual-brand strategy of "ZTE + Nubia" has been effective in expanding smartphone market channels in Southeast Asia, Latin America, and Europe [4] Margin Pressure and Strategies - The shift in revenue structure has led to temporary pressure on gross margins due to the competitive environment in computing power products [5] - ZTE plans to enhance gross margins through increased scale, higher self-research ratios, and expanding into solution sales [5] Intelligent Computing Advancements - ZTE is advancing its intelligent computing direction with a full-stack open solution to address key challenges in industrial intelligence transformation [6] - The company has developed a domestic optical interconnect GPU supernode, which won the highest award at the World Artificial Intelligence Conference [6][7] AI Model Development - ZTE has launched its self-developed large model, Nebula Coder-V6, which ranked first in inference benchmarks [8] - The company is focusing on AI home products, aiming to create a closed-loop value system for smart home applications [8] Future Plans - In the second half of the year, ZTE aims to deepen strategic cooperation with leading clients in the internet and finance sectors to enhance market share in computing power products [9] - The company is committed to an open mindset to build competitive advantages in the entire ecosystem [9]

Investment Rating - The report initiates coverage with a "Buy" rating for the company [3]. Core Views - The company is a global leader in integrated information and communication technology solutions, focusing on operator networks, government and enterprise business, and consumer business [15]. - The company's revenue for 2024 is projected at 121.299 billion yuan, a decrease of 2.38% year-on-year, with a net profit of 8.425 billion yuan, down 9.66% year-on-year [3][21]. - The core competitiveness of the connectivity business continues to improve, with an optimized market structure, particularly in the application of 5G-A technologies [3][28]. Summary by Sections Company Overview - The company provides end-to-end ICT solutions and serves over a quarter of the global population across more than 160 countries [15]. - The business is divided into three main segments: operator networks, government and enterprise, and consumer business [15][19]. Connectivity Side - The company is enhancing its access and transmission networks, with a focus on 50G PON and 5G-A technologies [48][52]. - The operator's backbone network is transitioning to 400G, with the first commercial deployment of a 400G all-optical inter-provincial backbone network announced by China Mobile [3][59]. Computing Power Side - The demand for computing power is driving growth in the server and switch markets, with the Chinese server market expected to reach 221.98 billion yuan by 2026 [2]. - The company is developing comprehensive intelligent computing solutions to support digital transformation across various industries [2][3]. Financial Forecast and Investment Recommendations - The company is expected to maintain steady growth, with projected net profits of 8.777 billion yuan, 9.491 billion yuan, and 10.394 billion yuan for 2025, 2026, and 2027, respectively [3][5]. - The earnings per share (EPS) for the same years are forecasted to be 1.83 yuan, 1.98 yuan, and 2.17 yuan, with corresponding price-to-earnings (PE) ratios of 20.20, 18.68, and 17.06 [3][5].