ZTE’s third-quarter revenue growth accelerates as AI servers drive growth, while gross margin remains under pressure
ZTE’s revenue rose 34% year on year in the third quarter of 2026. Nomura sees Chinese cloud providers’ demand for AI servers as the main driver, but changes in the product mix and competition continue to weigh on gross margin.
Original source：Nomura International (Hong Kong) Ltd.First published on Unhidea：Original source date：
Key takeaway
Nomura believes AI server demand is accelerating ZTE’s revenue growth, but controlled capital spending by telecom operators and changes in the product mix mean revenue growth is accompanied by margin pressure.
Where did third-quarter growth come from?
ZTE’s revenue was 38.813 billion yuan in the third quarter of 2026, up 34.0% year on year, a marked acceleration from 11.5% in the second quarter. Nomura attributes the growth mainly to strong demand for AI servers from Chinese cloud providers.
Net profit attributable to shareholders was 1.307 billion yuan in the third quarter, up 394.5% year on year, partly reflecting a low base. Excluding one-off items, recurring net profit was 592.9 million yuan, up 363.7% year on year.
Why is accelerating revenue still accompanied by margin pressure?
Gross margin was 24.6% in the third quarter, down 1.3 percentage points year on year but up 1.3 percentage points quarter on quarter. Nomura believes this reflects changes in the product mix and intense competition in China’s server market.
A lower expense ratio supported net profit: research and development expenses and sales and marketing expenses as a share of revenue fell by 0.9 and 2.3 percentage points year on year, respectively.
Profitability did not improve across all metrics: third-quarter operating profit was 230 million yuan, down about 75% from 917 million yuan in the second quarter; net profit attributable to shareholders also fell about 9% quarter on quarter.
How does Nomura view future growth and valuation?
Nomura expects China’s major cloud providers to continue investing in AI infrastructure in the second half of 2026, supporting the company’s revenue growth. At the same time, domestic telecom operators are controlling capital spending, and the operator business continues to face challenges.
The bank expects continued changes in the product mix to pressure margins and maintains its neutral rating and target price of HK$39. The target price is based on its earnings-per-share forecast of 1.88 yuan for fiscal 2026 and a price-to-earnings ratio of 19 times; the closing price listed in the report for 26 October was HK$19.10.
