ZTE profits slide on weak telecoms spending

Reuters

China's ZTE Corp, the world's fourth-largest handset producer and fifth-ranked telecoms equipment maker, posted a third straight fall in quarterly profit mainly due to weak telecoms spending and foreign exchange losses.


ZTE and rival Huawei Technologies Co Ltd have diversified from selling just telecom network gear, where growth has slowed, into consumer electronics gadgets such as smartphones and tablet PCs.


ZTE's October-December net profit slid to 991 million yuan ($157 million), down 48% from 1.89 billion yuan ($327.08 million) a year earlier, and way below a forecast for 2.16 billion yuan, according to Reuters calculations using unaudited figures for the first nine months.


China's big telecom operators, though, are expected to spend around 350 billion yuan ($53 billion) this year on upgrading and expanding their 3G technology, up 9% from last year and outpacing the industry average of around 5%, analysts have said. That would benefit ZTE, which with Huawei, owns half the core infrastructure telecoms equipment market in China.


"The worst should be over for ZTE," said Huang Leping, an analyst with Nomura Securities. "China's telecom carriers are actively spending this year. We've got China Unicom increasing its capex by a third and China Mobile spending on its networks where it will need equipment in areas where ZTE is strong."


ZTE, which listed on the Shenzhen stock market in 1997 and in Hong Kong in 2004 but whose largest shareholder is a Chinese state-owned enterprise, ranks behind Ericsson, Huawei, Nokia Siemens Networks and Alcatel Lucent in telecoms equipment, and trails just Nokia Oyj, Samsung Electronics and Apple in handsets.


Full-year net profit fell 36.6% to 2.06 billion yuan, lagging a forecast for 3.23 billion yuan from a Thomson Reuters I/B/E/S survey of 23 analysts. Annual revenue increased 23% to 86.3 billion yuan ($13.68 billion).


"Our company's profit margins and net profit have fallen significantly because of a slowing global economy (and) adjustments in domestic monetary policy," ZTE said in a statement.


ZTE sells equipment in more than 140 countries and derives around half its sales overseas, making its yuan-denominated earnings vulnerable to the weakening of the euro and other currencies such as the Brazilian real.


Reuters reported last week that ZTE entered a $131 million contract with the Telecommunication Co of Iran in December 2010 that sources said included a surveillance system capable of monitoring telephone and Internet communications. On Tuesday ZTE said it was no longer seeking to expand in Iran.


ZTE, which recently launched the Android-based Optik tablet with partner Sprint Nextel for the U.S. market, is focusing on raising margins on its telecoms gear and handsets, where it has been chasing market share by marketing low-cost smartphones at below 1,000 yuan ($160) each.


"It's worth noting that pricing pressure is easing in China's infrastructure market, indicating the strategy may work in 2012," said Qin Zhang, an analyst with J.P. Morgan wrote ahead of the earnings release.


 (Reporting by Lee Chyen Yee and Huang Yuntao; Editing by Ian Geoghegan)

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