ZTE Corporation (000063.SZ), a leading global telecommunications equipment provider, delivered mixed results in its 2025 annual report. The financial results show that the company's revenue returned to a growth trajectory, increasing by 10.38% year-on-year. However, its net profit attributable to shareholders fell by over 30%, presenting a typical scenario of increased revenue without corresponding profit growth.
During the reporting period, ZTE's carrier network business was impacted by adjustments in the 5G industry cycle, leading to declines in both revenue and profit. Growth in server and storage demand drove a doubling of revenue in the government and enterprise business, which became the standout highlight of the year's operations. Nevertheless, due to changes in the revenue structure, the overall gross profit margin still declined compared to the previous year.
Shareholding reductions by the Shanghai-Hong Kong Stock Connect and several broad-based ETFs in the fourth quarter of last year reflect market concerns about the fading dividends of the 5G industry. With network investments in 2026 still influenced by the industry cycle, navigating the downturn smoothly is a crucial operational adjustment for ZTE. The company's annual report notably mentioned "AI" 87 times, clearly signaling its embrace of digital and intelligent transformation. However, it also admitted that "the formation of a commercial closed-loop for intelligent computing business still requires time." As of the latest trading day, ZTE's A-share price was 37.4 yuan, with a total market capitalization of 178.9 billion yuan. The stock has declined 1.16% year-to-date.
**Revenue Up, Profits Down: 5G Dividends Peak, Computing Power Alone Can't Shoulder the Load**
The financial report indicates that ZTE achieved operating revenue of 133.895 billion yuan in 2025, a year-on-year increase of 10.38%. Net profit attributable to shareholders was 5.618 billion yuan, a decrease of 33.32% year-on-year. After excluding non-recurring gains and losses, the net profit was 3.37 billion yuan, falling even more sharply by 45.45%.
Explaining the reason for increased revenue without profit growth, ZTE stated that its "connectivity + computing power" strategy has begun to show results, with a significant rise in computing power business driving overall revenue. On the other hand, structural challenges arising from the shift in the 5G industry cycle put pressure on the profitability of its traditional businesses.
Analyzing the quarterly data reveals that the pressure from the profit decline was concentrated in the second half of the year. In the fourth quarter, the company's operating revenue was 33.376 billion yuan, a sequential increase of 15.22%. However, net profit attributable to shareholders was only 296 million yuan, a year-on-year drop of 42.95%, and the loss after excluding non-recurring items widened further to 509 million yuan. Combined for the third and fourth quarters, the cumulative loss after excluding non-recurring items reached 733 million yuan, indicating severe challenges to the profitability of its core operations.
Under this performance pressure, some shareholders chose to exit. Data shows that the Shanghai-Hong Kong Stock Connect was a net seller of 13.423 million ZTE shares in the fourth quarter. Several CSI 300 ETFs managed by Huatai-PineBridge, E Fund, ChinaAMC, and Harvest Fund also reduced their holdings to varying degrees.
From a business segment perspective, ZTE's three main divisions showed significant revenue divergence and a collective decline in gross profit margin. The operator network business, as the core foundation, was most directly affected by 5G investments entering a stable phase. The annual report noted that due to the continued decline in domestic carrier investments, revenue from products like wireless access and fixed networks decreased. During the reporting period, this segment generated revenue of 62.857 billion yuan, a year-on-year decrease of 10.62%. Its contribution to total revenue dropped from 58% the previous year to 46.94%, and the gross profit margin also fell by 2.8 percentage points to 48.09%.
In stark contrast, the government and enterprise business, driven by the AI wave, became the year's brightest spot. Benefiting from growth in server and storage demand, ZTE's government and enterprise business revenue reached 37.222 billion yuan in the past year, a substantial increase of 100.5% year-on-year. However, changes in the revenue mix for this business led to a 4.36 percentage point decline in its gross profit margin to just 10.97%, indicating room for improvement in profit quality.
Additionally, ZTE's consumer business achieved revenue of 33.916 billion yuan, up 4.35% year-on-year, primarily driven by growth in mobile phones and cloud computer revenues. But due to intensified competition in the home terminal market, the gross profit margin for this segment also decreased by 4.35 percentage points to 18.31%.
**Computing Power as the "Second Curve": How Far from Breakout to Mainstay?**
Facing the reality of plateauing 5G industry dividends, ZTE is fully committed to transitioning towards its new "connectivity + computing power" strategy. The annual report's unusual 87 mentions of "AI" demonstrate its determination to fully embrace artificial intelligence. The company has established full-stack, full-scenario capabilities in computing power infrastructure: at the hardware level, through self-developed DPU "Dinghai" chips, switch chips, and AI servers, it has achieved controllability from the "core" to the "device"; at the software level, it launched the AIBooster intelligent computing training and inference platform to address challenges in large model migration and computing power scheduling.
Simultaneously, the rapid rise of the computing power business has provided the company with a new growth driver. The annual report indicates that the computing power business continues to make breakthroughs with major clients, building a new engine for growth. This validates ZTE's technical strength in the AI field and serves as a key growth point in countering the decline of 5G dividends.
The doubling of ZTE's government and enterprise business revenue in 2025 has preliminarily verified the momentum of computing power as a "new engine." However, achieving high growth is relatively easier from a low base. The real challenge lies in whether the computing power business can become the core pillar driving sustained revenue growth and profit recovery for the company in the future.
The 5G industry has now reached a mature stage. Global carrier capital expenditure has transitioned from a "construction peak" to a "stable period," and the competitive focus for equipment providers has shifted from market share expansion to enhancing the value of application services. 5G construction is moving from broad coverage to deep potential挖掘, with 5G-Advanced becoming the new focus, leaving limited room for investment growth.
In its outlook for 2026, ZTE stated in the annual report that "network investment will still be affected by the industry cycle" and that "the commercial closed-loop for the intelligent computing business is still in its cultivation phase." This highlights two major difficulties on the transformation path: first, the downward trend of traditional businesses is difficult to reverse in the short term; second, the new business itself faces growing pains. Last year, the operating cost growth rate (110.8%) for the company's government and enterprise business exceeded its revenue growth rate (100.5%). Coupled with fierce market competition, this led to a decline in the gross profit margin.
Industry analysis suggests that the declining gross margin in the computing power business also reflects the increasingly intense competition in hardware integration models, particularly servers. While demand growth can boost revenue, profits remain thin. For ZTE, while pushing computing power and capturing market share, balancing the input-output ratio and improving profit quality will likely be key to truly unlocking its "second growth curve."
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