ZTE Corporation released its 2025 annual report on March 6, 2025, revealing revenue of 133.895 billion yuan, a 10.38% year-on-year increase, reaching a historic high. However, the company's net profit attributable to shareholders declined to 5.618 billion yuan, down 33.32% compared to the previous year.
The divergence between revenue growth and profit contraction stems from shifts in the company's business structure. In recent years, ZTE's high-margin operator network business has continued to shrink, while its enterprise business has expanded rapidly. This transition has weakened profitability, with the gross margin dropping from over 40% to 30%, and has also led to elevated accounts receivable and inventory levels, tying up substantial capital and depleting cash reserves.
To address cash flow needs, ZTE has actively issued bonds, with its payable bonds increasing by 7.81 billion yuan over two years. Concurrently, the company has allocated significant funds to financial investments, with such assets accounting for over 20% of total assets.
Regarding dividends, ZTE maintained a stable policy, proposing a cash dividend of 1.966 billion yuan for 2025, equivalent to a 35% payout ratio, consistent with 2023 and 2024 levels.
The rapid growth of the low-margin enterprise business has driven overall performance but adversely affected profit quality and liquidity. ZTE's operator network business, historically its profit pillar, reported revenues of 70.327 billion yuan in 2024 and 62.857 billion yuan in 2025, declining by 15.02% and 10.62%, respectively. In contrast, the enterprise business grew by 36.68% and 100.49% during the same periods, with 2025 revenue doubling to 37.222 billion yuan.
The enterprise business's gross margin of 10.97% remains significantly lower than the 48.09% margin of the operator network segment. By 2025, the enterprise business accounted for 27.80% of total revenue, up from approximately 10% in earlier years, while the operator network segment's share fell sharply from over 65% to 46.94%. This shift has substantially impacted profitability.
From 2023 to 2025, ZTE's gross margin declined from 41.53% to 30.25%, and its net margin dropped from 7.44% to 4.16%.
As an information and communication technology solutions provider, ZTE's procurement-integration model has resulted in high inventory levels. Its dealings with telecommunications operators and enterprise clients, which possess strong bargaining power, have also led to significant accounts receivable, further straining liquidity.
By the end of 2025, accounts receivable stood at 21.67 billion yuan, nearly four times the net profit for the year. Inventory also increased from 41.258 billion yuan to 47.017 billion yuan, a rise of nearly 6 billion yuan or 13.96% year-on-year.
These factors have eroded operating cash flow, with ZTE's monetary funds declining sharply. Broad monetary funds, including cash and tradable financial assets, decreased from 78.696 billion yuan in 2023 to 51.147 billion yuan in 2025.
Amid rising debt and liquidity pressures, ZTE has drawn criticism for allocating substantial resources to financial investments. As of the end of 2025, the company held 17.396 billion yuan in tradable financial assets and 31.081 billion yuan in debt investments, including 30.88 billion yuan in long-term certificates of deposit. An additional 510 million yuan in non-current assets due within one year also consisted of debt investments.
In total, financial investment assets amounted to 48.987 billion yuan, representing 22.5% of total assets.
On the same day as the earnings release, ZTE announced plans to use up to 40 billion yuan of its own funds for entrusted wealth management in 2026.
Meanwhile, the company has continued cost-control measures in research and development. R&D expenditures fell from 26.783 billion yuan in 2023 to 24.475 billion yuan in 2025, with the ratio to revenue declining from 21.56% to 18.28%.
ZTE also reduced its workforce from 72,093 employees in 2023 to 65,095 in 2025, including a decline in R&D personnel from 35,393 to 31,589. The proportion of R&D staff remained around 49%.
While streamlining personnel to focus on core operations may help safeguard competitiveness, financial metrics have yet to show significant improvement. In 2025, ZTE's return on invested capital was 3.58%, below the median of 6.1% over the past decade. The return on net operating assets also dropped sharply from 25.9% in 2023 to 14% in 2025, indicating potential inefficiencies in capital allocation.
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