ZTE struggles to profit from sales growth

Chinese vendor ZTE is struggling to convert sales growth into hard earnings, resulting in a 12.3% drop in first half net profit.
Profit hit 769 million Yuan ($120.4 million/€83.4 million) compared to $129.1 million in 1H10 – those results reported in US$ -, despite revenue growing 21.5% to 37.3 billion Yuan on the back of a strong performance in Europe and the US, the firm’s fastest growing markets during the period.
International markets are increasingly important to the firm, generating 55.7% of 1H11 revenues compared to 49.6% in 1H10. The contribution from Europe and the US grew from 18% in 2010 to 24.1% this year, with Asia Pacific generating 18.2% and Africa 13.4%. The regions also proved a lucrative source of LTE contracts, with ZTE picking up 23 during the period.
While the firm’s domestic business remains challenging due to a slowdown in orders, tight cost controls and a focus on market share paid off in the form of a $311 million increase in revenue to $2.5 billion (reported as 16.5 billion Yuan in the earnings release)
ZTE predicts business in China will pick up in the back-half of the year as operators accelerate capex, and that mobile broadband networks and smartphones will provide the greatest fodder internationally.