ZTE's first-half profit slumps 68% amid weaker gear market

ZTE reported a 68 percent plunge in first-half net profit due to weaker spending on network equipment from carriers, tough competition and foreign-exchange losses. However, analysts and the company said they expect the second half of the year to produce better results in the gear market.

The Chinese equipment and handset vendor reported net profit fell to $38.5 million, down from $121 million a year ago, but beat the average forecast of $35.1 million by seven analysts polled by Reuters. ZTE had warned in July that its first-half profit might fall by as much as 80 percent. According to calculations by Reuters, ZTE's second-quarter profit fell to $14.8 million from $101 million in the year-ago period, which would be the company's sharpest quarterly drop since the first quarter of 2006.

Overall revenue climbed 15.2 percent in the first half to $6.71 billion. A slight majority--51 percent--of the company's operating revenue came from outside of China in the first half. 

The company noted it made strides in China, Japan and India and that in July it won an LTE network construction project with China Mobile in Hong Kong, which will be the first dual-mode LTE network in the Asia-Pacific region. However, ZTE remains locked out of the U.S. network infrastructure market, and, along with Huawei, has been the subject of an investigation by an intelligence committee in Congress. ZTE has denied any ties to the Chinese military and has said it has not received any illegal subsidies form the Chinese government.

ZTE's struggles reflect broader trouble in the network gear market in the second quarter. A recent report from the research firm Dell'Oro group found that despite rising LTE spending, the gains in LTE are not yet offsetting slower 2G/3G spending, and that the total mobile RAN market declined 18 percent in the second quarter.

Analysts expect ZTE to benefit from higher operator spending in the second half, especially in China. "Our channel check shows that Chinese telecom operators completed only 30 percent of their full-year capex in the first half, and we expect them to fulfill their full-year plans," BOCI Research said in a recent report.

Jun Ma, chief investment officer at E Fund Management, which owns ZTE stock, told Reuters ZTE would benefit from increasing its presence in emerging markets. "China's telecom industry has stabilized after years of fast growth," Ma said. "If companies like ZTE and Huawei could build up a larger presence in India or other emerging markets that would create a lot of opportunities."

ZTE said it "will capitalize on opportunities presented by capacity expansion and upgrades of global wireless networks, national broadband strategies and changing government and corporate smart terminal requirements. ZTE will continue to focus on developing nations and mainstream carriers while expanding its business in the government and corporate service sectors."

Meanwhile, ZTE's handset division is working with China Mobile to unveil a TD-LTE smartphone, the Grand X LTE, according to Bloomberg. ZTE wants to double its overall smartphone sales in 2012.

For more:
- see this release
- see this Reuters article
- see this Bloomberg article

Related Articles:
Dell'Oro: Ericsson, Alcatel-Lucent lead surging LTE gear market
Network infrastructure vendors face tough Q2, road ahead
ZTE share price slumps over EU/China trade war worries
Lawmaker says Huawei, ZTE may be getting Chinese subsidies

Suggested Articles

The new Viasat browser exemplifies innovation.

FCC Chairman Ajit Pai instead wants to subsidize up to $9 billion for rural 5G deployments over the next 10 years.

There's no slowing down for Verizon's engineering team, which is working to meet the company's goal of 5G in 30 markets by the end of the year.