Core Viewpoint - ZTE Corporation's stock plummeted over 10% following the release of its Q3 2025 earnings report, indicating market concerns over declining profits despite revenue growth [1] Financial Performance - For the first three quarters of 2025, ZTE reported a revenue of 100.52 billion yuan, an increase of 11.63% year-on-year [1] - The net profit attributable to shareholders decreased by 32.69% to 5.322 billion yuan [1] - In Q3 alone, the company achieved a revenue of 28.97 billion yuan, a year-on-year increase of 5%, but the net profit dropped significantly by 88% to 264 million yuan [1] Market Analysis - Huatai Securities attributed the profit decline primarily to a decrease in high-margin operator business revenue, which has a lower proportion in the overall revenue structure, shifting towards lower-margin computing services [1] - The company is facing short-term performance pressure due to declining operator demand and revenue recognition timing [1] Strategic Developments - Despite short-term challenges, ZTE's long-term strategy focusing on computing capabilities remains unchanged [1] - The company has made significant progress in its full-stack computing layout, including: 1. Development of self-researched DPU (Dinghai series) and high-capacity switching chips (Lingyun and Tianyi series), enabling large-scale high-performance interconnection of domestic GPU cards [1] 2. Entry into core business scenarios of major domestic internet companies and leading enterprises in finance and power, with a focus on high-performance training and inference systems [1]

Investment Rating - Strongly Recommended (Maintain) [3] Core Insights - The company reported a revenue of 100.52 billion yuan for Q3 2025, a year-on-year increase of 11.63%, but the net profit attributable to shareholders decreased by 32.69% to 5.32 billion yuan [1] - The company's revenue from computing power increased by 180% year-on-year, accounting for 25% of total revenue, becoming the second-largest revenue pillar after consumer business [7] - The operator network revenue faced pressure due to a decline in domestic telecom infrastructure investment, while the enterprise business grew by 130% year-on-year [7] Financial Performance - For the first three quarters of 2025, the company achieved a revenue of 289.67 billion yuan, a year-on-year increase of approximately 5.11%, but the net profit dropped by 87.84% to 264 million yuan [7] - The company’s R&D expenses for the first three quarters were 17.81 billion yuan, accounting for 18% of revenue, indicating a strong commitment to innovation [7] - The projected total revenue for 2025 is estimated at 140.51 billion yuan, with a year-on-year growth of 16% [9] Market Position and Strategy - The company is focusing on a "connection + computing power" strategy, enhancing its AI infrastructure deployment [7] - The company maintains a strong market share in core areas, with its 5G base station and core network shipments ranking second globally [7] - The consumer business, including home and personal segments, accounted for 25% of total revenue, showing robust growth [7] Valuation Metrics - The current price-to-earnings (PE) ratio is projected to be 32.6 for 2025, indicating a valuation that reflects growth expectations [9] - The price-to-book (PB) ratio is expected to be 3.1 for 2025, suggesting a premium valuation relative to book value [9]

Core Viewpoint - The profitability of ZTE Corporation has been significantly impacted by the reduction in investment from telecom operators, leading to a decline in net profit despite a slight increase in revenue [3][4]. Financial Performance - In Q3, ZTE reported revenue of 28.967 billion yuan, a year-on-year increase of 5.11%, while net profit fell by 87.84% to 264 million yuan [3]. - For the first three quarters, ZTE's revenue reached 100.52 billion yuan, up 11.63% year-on-year, but net profit decreased by 32.69% to 5.322 billion yuan [3]. Business Segment Analysis - The contraction in traditional communication business is the primary reason for ZTE's profit decline [4]. - The capital expenditure of the three major telecom operators in China decreased by 16.5% year-on-year, totaling 112.8 billion yuan in the first half of 2025 [4]. - Revenue from ZTE's operator network business fell by approximately 6% in the first half of the year, attributed to the maturity of domestic 5G network construction [6]. Strategic Shift - ZTE is shifting its focus towards emerging businesses, particularly in the computing sector, which saw a revenue increase of 180% year-on-year, accounting for 25% of total revenue [6]. - The company has developed self-researched DPU chips and large-capacity switching chips, achieving large-scale high-performance interconnection of domestically produced GPU cards [7]. - ZTE's new orthogonal super-node system for high-performance training and inference is designed to support large-scale intelligent computing clusters [7]. Market Reaction - On October 28, ZTE's stock closed at 39.56 HKD, down 4.86%, while its A-share closed at 49.39 yuan, down 3.76% [7].

Core Viewpoint - The financial performance of ZTE Corporation has been significantly impacted by the reduction in investment from telecom operators, leading to a substantial decrease in profit margins despite a slight increase in revenue [2][4]. Group 1: Financial Performance - In Q3, ZTE reported revenue of 28.967 billion yuan, a year-on-year increase of 5.11%, but net profit fell by 87.84% to 264 million yuan [2]. - For the first three quarters, ZTE's revenue reached 100.52 billion yuan, up 11.63% year-on-year, while net profit decreased by 32.69% to 5.322 billion yuan [2]. - The decline in profit is primarily attributed to the contraction of traditional communication business [2]. Group 2: Investment Trends - Major telecom operators in China are expected to maintain a cautious and efficient investment strategy, focusing on strategic emerging industries such as AI, computing power, and 6G, while reducing investments in traditional connectivity [3]. - Capital expenditures for the three major operators in the first half of 2025 are projected to total 112.8 billion yuan, a decrease of 16.5% compared to the same period last year [2]. Group 3: Business Structure and New Opportunities - ZTE's operator network business revenue decreased by approximately 6% in the first half of the year, reflecting the maturity of domestic 5G network construction [4]. - The company is shifting its focus towards emerging businesses, particularly in the computing power sector, which saw a revenue increase of 180% year-on-year, accounting for 25% of total revenue [5]. - ZTE's self-developed DPU chips and high-capacity switching chips have achieved large-scale domestic production, with significant adoption by major internet and financial companies [5].

Core Viewpoint - The decline in traditional communication business is the primary reason for ZTE's profit drop, as operators reduce their capital expenditures, impacting the profitability of upstream equipment manufacturers [1] Group 1: Financial Performance - ZTE's Q3 revenue was 28.967 billion yuan, a year-on-year increase of 5.11%, while net profit fell to 264 million yuan, a decrease of 87.84% [1] - For the first three quarters, ZTE's revenue reached 100.52 billion yuan, up 11.63% year-on-year, but net profit decreased by 32.69% to 5.322 billion yuan [1] Group 2: Industry Trends - The three major operators in China are expected to maintain a cautious and efficient investment strategy, focusing on strategic emerging industries such as AI, computing power, and 6G, while traditional investments in mobile and broadband networks will gradually shrink [2] - Capital expenditures for the three major operators in the first half of 2025 are projected to be 112.8 billion yuan, a decrease of 16.5% compared to the same period last year [1] Group 3: Business Structure - ZTE's operator network business revenue for the first half of the year was 35.06 billion yuan, a year-on-year decrease of approximately 6%, attributed to the maturity of domestic 5G network construction [3] - ZTE is shifting its focus towards emerging businesses, with computing power revenue growing by 180% year-on-year, accounting for 25% of total revenue [3] Group 4: Strategic Initiatives - ZTE is actively responding to the ongoing decline in domestic 5G investment by integrating AI into its ICT technology base [4] - The company has achieved large-scale high-performance interconnection of domestically produced GPU cards and has entered partnerships with major domestic internet and financial companies [4]