2012 Annual Report - ZTE

ZTE CORPORATIONReport of the Board of DirectorsThe Board of Directors hereby presents its audited operating results report together with the financial statementsof the Group for the year ended 31 December 2012.BUSINESS OF THE GROUPThe Group is principally engaged in the design, development, production, distribution and installation of abroad range of advanced telecommunications systems and equipment, including carriers’ networks, terminals,telecommunications software systems, services and other products.FINANCIAL RESULTSPlease refer to page 153 and page 314 of this report for the results of the Group for the year ended 31 December2012 prepared in accordance with PRC ASBEs and HKFRSs, respectively.FINANCIAL SUMMARYSet out on pages 19–22 of this report are the results and financial position summary of the Group for the threefinancial years ended 31 December 2012 prepared in accordance with the PRC ASBEs.Set out on pages 22–23 of this report are the results and financial position of the Group for the five financial yearsended 31 December 2012 prepared in accordance with HKFRSs, which have been extracted from the respectivefinancial statements of the Group for each of the five financial years ended 31 December 2008, 2009, 2010, 2011and 2012 prepared in accordance with HKFRSs.(I) Business Review for 20121. Overview of the domestic telecommunications industry for 2012There was a slowdown in equipment investment by the domestic telecommunications industry in 2012, whileindustry players were focused on scale expansion of 3G development, the Broadband China strategy and theconstruction of supporting transmission facilities, the development of the 4G industry chain and strategic newsectors such as Cloud Computing and the Internet of Things.2. Overview of the global telecommunications industry for 2012There was a slowdown in investments in equipment by the global telecommunications industry in 2012, althoughperformances varied from region to region. With the gradual phasing-out of 2G networks, ongoing optimisationand upgrade of 3G networks, the issue of 4G licences and a few commercial deployments, consumers’ demandfor smart phones continued to grow and so did the amount of data flow through carriers’ networks. Subsequentof carriers to identify effective means to lower unit costs for data flow have in turn driven the roll-out of 4Gnetworks. In connection with the wireline network, the construction of high-speed broadband access networksaround the world continued to advance, such that the increase in data flow over wireless networks combined withthe acceleration of broadband access has started the construction of transmission networks.3. Operating Results of the Group for 2012As competition in the global telecommunications industry conducted itself in a more rational manner in 2012, theGroup focused on populous nations and mainstream carriers in its business development and operation, withvigorous plans to tap the government and enterprise and services sectors. However, owing to the combined effectsof, among others, postponed execution of certain systems contracts and decrease in revenue from terminals in26