ZTE Ramps up Investment in 5G R&D with a Forecast of RMB 0.8-1.2 Billion in Q1 2019 Profit

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27 March 2019, Shenzhen, China -- ZTE Corporation (0763.HK / 000063.SZ), a major international provider of telecommunications, enterprise and consumer technology solutions for the Mobile Internet, today reported its 2018 annual results and preliminary financial results of the first quarter of 2019. According to the company, it achieved turnaround from loss to profit in the first quarter of 2019, estimating net profit attributable to holders of ordinary shares of the listed company to be from RMB 0.8 billion to RMB 1.2 billion. The company posted a full-year operating revenue of RMB 85.51 billion in 2018, with net profit attributable to holders of ordinary shares of the listed company amounted to RMB -6.98 billion, which was within the estimated range disclosed in the preliminary announcement of 2018 annual results. The results were mainly attributable to the USD1 billion penalty described in the “INSIDE INFORMATION ANNOUNCEMENT AND RESUMPTION OF TRADING” published on 12 June 2018 and operating losses and loss provisions arising from the matter described in the “INSIDE INFORMATION ANNOUNCEMENT” published by the company on 9 May 2018. Net cash flows from operating activities amounted to RMB 1.01 billion for the three months ended 31 December 2018. The research and development costs in 2018 amounted to RMB 10.91 billion, accounted for 12.8% of the operating revenue. In 2018, ZTE adhered to innovation drive and concentrated on efficiency improvement by focusing on value customers, core products and optimizing R&D structure. It has continuously concentrated on the core 5G technical fields and further intensified 5G R&D investment. During the reported period, ZTE’s major business continued to recover, bolstered with the window of opportunity of 5G development and its technological innovation capabilities. The company has become a key supplier with 5G end-to-end solution capabilities. It has core competitiveness of complete 5G product series, with a perfect product layout, serialized solutions and a rich business ecosystem in key areas, such as 5G wireless, transport, core networks, vertical industry applications and devices. In the Wireless Networks, ZTE has strengthened its investment in key wireless technologies and important markets. It has collaborated with 30 global operators in 5G, with the shipment of Massive MIMO base station reaching 10,000 and more than 400 NFV commercial and PoC cases worldwide. The company is industry-leading in technical innovations and applications, such as Common Core network, end-to-end network slicing, and edge computing. In the Wireline Networks, ZTE has seized the opportunities of technological revolution, such as 5G transport, big video, next-generation PON, SDN/NFV, and continued to optimize the market layouts. The company has maintained its industry leadership in terms of the core technical indicators and commercial trial progress of 5G transport. Meanwhile, the company’s flagship optical access product takes the lead in capacity, integration and architecture, and has been deployed on a large scale. Furthermore, the company’s optical network products play a leading role in transmission performance. In the field of beyond 400G transmission, the company constantly breaks the record of the industry's longest distance. In the Government and Corporate Business, based on the concept of “cloud network ecosystem”, the company has focused on core products of wireless, bearer, big data and cloud computing, and cooperated with mainstream partners to build up innovative industry solutions and accelerate the digital transformation of the industry. Of these solutions, uSmartCloud cloud platform solution serves more than 300 commercial sites globally. The GoldenDB distributed database aims to create a "new engine" of financial technology, expecting to promote the reform and innovation of China's financial and banking databases. In the field of 5G industry applications, ZTE has collaborated with operators and partners to carry out 5G service innovation demonstrations in vertical industries, such as big video, Internet of Vehicles, industrial Internet and smart grid, thereby strengthening strategic cooperation with key partners of vertical industries and jointly promoting the research and development of 5G industry applications. In terms of devices, ZTE has concentrated on 5G devices, industrial applications and key markets. In the first half of 2019, ZTE’s 5G smartphones will be ready for commercial use. Its 5G flagship smartphone Axon 10 Pro 5G, debuted at MWC 2019, is expected to be first available in Europe and China. Moreover, the company has been committed to promoting serialized 5G products, such as 5G tablets, 5G indoor and outdoor CPEs, 5G mobile hotspots, 5G data devices, 5G vertical industry modules, so as to constantly satisfy consumers’ requirements for 5G intelligent application scenarios. ZTE focuses on key technologies and achieves leading technological advantages. By the end of 2018, the company had cumulatively filed over 73,000 patents globally, with more than 35,000 granted worldwide. According to the World Intellectual Property Organization’s latest report, ZTE ranks 5th in the world with 2080 PCT international patent applications. The company’s cumulative PCT patent applications have reached over 29,000 in total. As a major participant and contributor to global 5G technological researches and standardization, ZTE has been intensifying its investment in 5G arena. It has submitted more than 7,000 5G NR/NexGenCore standard proposals and over 3,000 5G patent applications to international organizations, such as 3GPP. Moreover, ZTE has declared over 1,200 families of 3GPP 5G standard-essential patents (SEP) to the European Telecommunications Standards Institute (ETSI). Taking compliance as the strategic cornerstone of the company, ZTE adheres to compliance management, and continuously strives to build a comprehensive and integrated compliance program, including export control, anti-bribery compliance and data protection compliance, expecting to prevent risks and guarantee the company’s sustainable development. With business sustainability as its top priority, the company aims to achieve the highest efficiency at the lowest management cost under the premise of safe operation so as to protect the interests of ZTE's customers, partners, shareholders, employees and stakeholders in a better manner. In 2019, ZTE will be committed to the independent innovation of core technologies, aimed to achieve leadership in 5G innovation, bolstered by its cutting-edge technologies. The company will keep focusing on its main operators, value customers and core products while intensifying the open cooperation and synergy with customers and partners. ZTE will continuously consolidate the three fundamentals of "Compliance, Talent, and Internal Control" by promoting the common development of employees and the company, strengthening the compliance process, optimizing the corporate governance structure, and preventing operational risks.

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