ZTE’s Road to 2020 – Embracing Era of Excellence

As we celebrate the New Year, I want to express my sincere thanks and congratulations to all of you for making ZTE a better company in 2015. Together, we pursued our new M-ICT strategy and made deep-seated changes in our business operations, achieving solid results collectively as a company. In 2016, we will press on and run even faster.

Review of 2015 – ZTE Made Better

ZTE became a better and stronger company in 2015. We achieved faster and more robust revenue growth, and more importantly we strengthened our capabilities to serve our customers and create value for them. ZTE became a more competitive company and laid foundations for future growth.

ZTE’s core competencies – our R&D and service delivery – provided us with the foundations for growth during 2015. Itis clear that ZTE advanced our core networks and wireline broadband capabilities, and strengthened our relationships with major multinational operators. In Pre5G and 5G, ZTE made huge breakthroughs that led the industry globally, and as a result we won the trust of other pioneers including SoftBank, KT Group and China Mobile,becoming their preferred partners. ZTE is committed to drive 5G development in China, Japan and South Korea, and leverage our strong positions in these countries to make advances in other key markets. ZTE is also well-positioned to achieve strong growth in IP videos through our capabilities in network virtualization and cloud-based networks, and make further breakthroughs in the financial services sector through our Big Data Analytics and Distributed Data Center technologies. In our Mobile Devices business, ZTE’s new AXON flagship smartphones, and the Nubia line are well-regarded globally for product innovation and quality, though we appreciate that we need to make further improvements in our product marketing and channel distribution.

In the first three quarters, ZTE increased revenue per employee by 10%, highlighting our company’s growing competitiveness. Rising labor costs in China is an irreversible trend, so we must continue to make ourselves more innovative and efficient. This is how ZTE will achieve improved returns for both our employees and shareholders.

ZTE’s R&D spending is expected to exceed RMB 10 billion in 2015, ranking our company among the Top-3 in China, and among the world’s Top-80 companies. In the first three quarters, we invested 12% of revenue in R&D, the highest ratio in our history. The successes we achieved in the past year is built on our commitment to R&D, helping our company to earn the trust of key customers. A quarter of ZTE’s revenue is now generated in Europe and North America, where the company is now becoming a major challenger. These impressive achievements are the results of the efforts and sacrifices of our colleagues.

In the past year, ZTE became a better company thanks to the extraordinary efforts of all our colleagues. We need to keep challenging ourselves and aim for excellence as we look ahead, because we need to surpass our competitors, and not merely follow in others’ footsteps. As a company, ZTE needs to re-double our efforts and pursue new targets.

Looking Ahead – Excelling to Capture Opportunities in New Era

How can ZTE do even better going forward, in a time of unprecedented opportunities and challenges?

Opportunities are opening up across the world. Through the “Europe 2020 Initiative”, companies and organizations in the European Union are committed to use Digital technologies to transform entire industries and increase productivity. The “Digital Silk Road” program in China is working to bring broadband services to cover more than 90% of rural populations. These counter-cyclical programs will create fresh opportunities for technology providers globally even as uncertainties and headwinds persist in the world economy. With our new M-ICT strategy, ZTE is in a strong position to take advantage as the Mobile Internet makes consumers, businesses, organizations and a growing array of objects more connected on super-high speed networks, driving innovations in new services and applications. With increasing Internet of Things (IoT) deployments, and the development of next-generation networks, companies and entire industries will be transformed and disrupted, opening up major new opportunities for ZTE to grow in new markets and industry verticals.

Our confidence in the future is also inspired by China’s ongoing economic reforms and growing international influence. New reform programs formulated by the Chinese government including the “Made in China 2025” plan, as well as international initiatives such as “One Belt, One Road” and the Asian Infrastructure Investment Bank will provide leading technology companies like ZTE with major market opportunities. The Chinese government is embracing policies to support innovation, environmental protection and collaboration, which dovetail well with ZTE’s core CGO corporate values, namely Cool, Green and Open.

The recent investment by the National Integrated Circuit Industry Investment Fund Corporation in ZTE Microelectronics is a good example of the opportunities opening up for the company. ZTE Microelectronics was ranked No. 5 among semiconductor companies in China, with revenue of more than RMB 3 billion in 2014. ZTE is committed to further grow our semiconductor operations, as it is clear that there are substantial market opportunities in China. Each year, China imports more than USD 200 billion of semiconductor products, more than crude oil. Going forward, the semiconductor industry will be a sector of key strategic focus for the Chinese government, and ZTE is well-positioned in this segment. We believe this year, ZTE Microelectronics will break into the Top-3 in the Chinese market.

Smart Cities also represent a major market opportunity for ZTE. The Chinese government invests more than 10% of GDP in infrastructure such as roads, rail and airports, and another 10% on public services such as education, healthcare and administration. Digitization is going to change how these investments will be allocated in the future. With our Smart City solutions, ZTE is working with government and key industry stakeholders to drive innovations in technology platforms and business models. ZTE’s Smart City 2.0 solution comprehensively supports the development of better and more efficient metropolitan public services by helping our partners build the underlying technology architectural platforms, as well as support more optimized management and the development of business models.

ZTE is continuing to evolve to Smart City 3.0, which will deploy our market-leading Big Data Analytics capabilities to help companies and corporates create more valuable public services for users.

ZTE’s capabilities in New Energy, 5G and the Internet of Things make our company strongly positioned to help governments and environmental agencies tackle pollution and reduce carbon emissions. As a company, these represent more than business opportunities. More importantly, these are priorities for ZTE because they are closely aligned with our company’s values and societal responsibilities.

Developing Culture of Excellence

To capture these emerging market opportunities, each and every member of the ZTE family must pursue excellence and demand the very best.

With our talented workforce, ZTE has all the attributes required to be successful. To achieve our goals as a company, we must continually challenge ourselves to unlock the potential of our people.

ZTE is committed to recruit the very best people to join our company. To achieve this, two factors are key. 1) We must develop policies to attract and retain the best talents. 2) Our company must continue to be successful. These two factors are mutually-reinforcing.

Senior ZTE management including Chairman Hou Weigui are actively discussing ways to attract the very best people to our company. We recognize that our senior executives need to provide strong leadership and strategic thinking, and the company must offer competitive compensation and incentives based on performance, as well as streamline our internal processes to speed up decision-making.

In 2016, we will be focused on HR programs to help us achieve the best performance. We will offer improved incentives to employees rated among the Top 10% of the company, and we will be actively recruiting new employees totaling around 10% of our current headcount. As ZTE diversifies our business operations in other sectors under our M-ICT strategy, the company will bring in people outside the telecommunications industry, as we add new expertise and skillsets in areas such as New Energy, Autos and the Internet.

To make the new HR programs credible and effective, we must of course develop stringent performance evaluation and benchmarking systems. To paraphrase Jack Welch, the former CEO of General Electric, our new policies are designed to help the company win and become successful. If this objective is not achieved, the management must bear responsibility for the ineffectiveness of the programs.

The new plans for ZTE were formulated to help the company become successful over a longer-term horizon. I wish to take this opportunity to share a new goal for ZTE. By 2020, the company is targeting to grow our annual revenue to RMB 200 billion. In order to achieve this target, we must all excel in our work, making ZTE more competitive and increase the company’s market share.

2016 is a key year, representing the start of our road to 2020. Each and everyone of us at ZTE must pursue excellence to help the company capture the exciting new opportunities that are fast emerging. I believe these new opportunities will be more than enough to outweigh any concerns over the global economy. Please accept my best wishes to you and your families for a successful and fulfilling 2016.

(Mr Shi Lirong is ZTE’s CEO and President. The New Year’s message has been reproduced from here).