BlackRock's Growing Stake in ZTE Signals Confidence in 5G and Global Telecom Recovery

The investment firm
has quietly built a significant position in ZTE Corporation, increasing its long stake in the Chinese telecom giant’s H shares to 6.93%, according to a filing with the Hong Kong Exchange (HKEX). This move underscores a growing optimism about ZTE’s prospects amid a global recovery in telecommunications infrastructure and the rollout of 5G networks. For investors, the question is whether this strategic bet reflects a turning point for ZTE—or if lingering geopolitical risks could undermine its comeback.
ZTE’s Comeback from Crisis
ZTE has long been a bellwether for China’s tech ambitions and a flashpoint in U.S.-China trade tensions. In 2018, the U.S. government imposed sanctions that nearly crippled the company, barring it from purchasing American components. After paying a $1 billion penalty and installing a compliance regime, ZTE rebounded, but its stock languished. Over the past two years, however, the company has steadily regained momentum. Revenue for 2022 reached RMB 122.9 billion ($17.7 billion), up 6% year-over-year, with gross profit margins improving to 15.8%.
The sanctions’ shadow has not entirely lifted, but ZTE has positioned itself as a critical player in 5G—a market expected to reach $620 billion globally by 2030, according to a June 2023 McKinsey report. The company now supplies equipment to over 40 operators worldwide and has secured a 10% share of the global telecom infrastructure market, behind only Huawei and Ericsson.
While ZTE’s stock has lagged broader tech indices in recent years, BlackRock’s increased stake suggests it sees better days ahead. The firm’s investment philosophy often focuses on structural trends, and 5G infrastructure fits that mold. With governments worldwide prioritizing network upgrades and the rise of AI-driven applications demanding faster connectivity, ZTE’s role in enabling this transition is hard to ignore.
The Case for ZTE’s Future
Three factors make ZTE an intriguing play for long-term investors:
- 5G Leadership: ZTE holds over 50,000 5G-related patents and has secured deals with European and Asian operators, including Vodafone and Singtel. Its openRadio platform, which reduces deployment costs by 30%, has drawn interest from emerging markets.
- Cloud and Enterprise Growth: The company’s enterprise business, focused on cloud computing and data centers, grew 15% in 2022. This segment now accounts for 20% of revenue, up from 12% in 2020.
- Geopolitical Diversification: ZTE has deliberately reduced reliance on U.S. suppliers, shifting to Asian and European partners. This strategy has insulated it from further sanctions while expanding its appeal in regions wary of Huawei’s dominance.
Risks and Challenges
Yet ZTE’s path remains fraught. The U.S.-China rivalry continues to cast a shadow, with Washington still restricting ZTE’s access to certain American technologies. Meanwhile, competitors like Nokia and Ericsson have stronger brand recognition in Western markets. Domestically, Huawei’s dominance—though weakened by U.S. sanctions—still looms large.
Regulatory risks are also a wildcard. In March 2023, ZTE was fined RMB 1.3 billion for violating Chinese data privacy laws, highlighting the regulatory scrutiny facing tech firms. For BlackRock, the bet hinges on ZTE’s ability to navigate these hurdles while capitalizing on secular trends.
Conclusion
BlackRock’s 6.93% stake in ZTE represents a bold vote of confidence in the company’s ability to thrive in a post-pandemic, post-sanction world. With 5G deployments accelerating and enterprise tech spending surging, ZTE’s fundamentals align with a multiyear growth story. However, investors must weigh this against persistent geopolitical and regulatory risks.
The data supports cautious optimism: ZTE’s R&D spending hit RMB 16 billion in 2022 (13% of revenue), and its 5G equipment backlog grew 25% in early 2023. If BlackRock’s timing is right—and the global telecom sector continues its recovery—this could be a landmark investment in a company once written off but now poised for renewal.
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