ZTE's H1 Performance: Navigating AI and 5G-A Growth Amid Geopolitical Pressures

ZTE’s first-half 2025 financial results underscore its aggressive pivot toward AI and 5G-Advanced (5G-A) technologies, even as geopolitical headwinds and margin pressures loom. Total revenue reached RMB 71.55 billion, a 14.5% year-on-year increase, driven by its “Connectivity + Computing” strategy [1]. The second-curve business—encompassing computing power and terminal devices—surged nearly 100% YoY, contributing over 35% of total revenue [1]. This growth was fueled by AI-powered innovations, including intelligent computing servers and AI-optimized terminals like the nubia Flip 2 foldable smartphone [1].

The government & enterprise segment emerged as a standout, generating RMB 19.25 billion in revenue—a 109.9% YoY leap—while the consumer segment grew 7.6% to RMB 17.24 billion, bolstered by AI-enabled devices and international brand expansion [1]. ZTE’s R&D investment of RMB 12.66 billion (18% of operating revenue) in H1 2025 further signals its commitment to AI-ICT integration and 5G-A advancements [1].

However, ZTE’s strategic bets come with significant risks. Despite the 2023 easing of U.S. sanctions, the company remains on the U.S. Commerce Department’s Entity List, restricting access to Western technologies and inviting scrutiny from policymakers like Senator Marco Rubio [1]. The European Union’s “de-risking” strategy adds another layer of complexity, as European markets remain wary of Chinese telecom firms, potentially limiting partnership opportunities [1].

Margin pressures are also intensifying. While Q1 2025 revenue rose 7.8%, net profit fell 10.5%, and operating cash flow declined 37.9%, reflecting the capital intensity of AI and 5G-A development [1]. ZTE’s 2024 R&D expenditure of 24.03 billion yuan (20% of revenue) highlights its ambition but underscores the sector’s competitive demands [2].

For investors, ZTE represents a high-stakes opportunity. Its AI and 5G-A initiatives align with global digital transformation trends, yet geopolitical tensions and margin erosion could test its long-term resilience. The company’s ability to scale second-curve businesses while navigating regulatory scrutiny will determine whether its strategic investments translate into sustainable growth.

Source:
[1] ZTE reports 14.5% YoY revenue growth in H1 2025, [https://www.zte.com.cn/content/zte-site/www-zte-com-cn/global/about/news/zte-reports-14-5-yoy-revenue-growth-in-h1-2025.html]
[2] ZTE's Share Price Volatility: A Contrarian Opportunity in ... [https://www.ainvest.com/news/zte-share-price-volatility-contrarian-opportunity-geopolitically-sensitive-telecom-sector-2508]