ZTE shares hit by profit warning

By Chen Dujuan Source:Global Times Published: 2012-7-17 23:40:03

Shares of ZTE Corp, China's second largest telecom equipment maker, fell for two consecutive days, following a profit warning and reports of job cuts.

ZTE's Shenzhen-listed shares closed down 2.82 percent Tuesday after dropping by the maximum daily limit of 10 percent Monday and its Hong Kong-listed shares also dropped 1.53 percent after a 16.32 percent slump Monday.

The Shenzhen-based firm said late Friday that its net profit would total 154 million to 308 million yuan ($24.4 million to $48.9 milliion) in the first half of 2012, dropping 60 to 80 percent year-on-year from 769 million yuan in 2011.

ZTE attributed the profit decline to considerable investment returns in the first half of 2011, foreign exchange losses and order postponement by domestic telecom operators.

"Our performance in major businesses is better in 2012 than the previous year," Dai Shu, spokesperson of ZTE China, told the Global Times Tuesday. "If we deduct the 900 million yuan earnings by selling Nationz Technologies Inc's shares in 2011 and 150 to 200 million yuan foreign exchange losses resulting from the eurozone crisis."

ZTE would grow faster than the average growth of the industry in 2012, Dai projected, noting that the company would release its semiannual report in August.

However, the firm has to face worsening market environment and industrial bottlenecks, analysts said.

Dragged by the global economic downturn, telecom operators around the world postponed their projects and investments, and the trend is unlikely to reverse in the short term, said analyst Chen Yunhong from Sinolink Securities.

Technology research firm Gartner predicted that the global telecom sector would see 2 percent expansion in 2012.

Media reports said many ZTE staff have been recalled from overseas postings since early this year and further job cuts would be announced within the year.

Spokesperson Dai from ZTE denied imminent job cuts, saying that the company has no layoff plan but instead would recruit thousands of new graduates this year.

"ZTE would recruit more experienced local staff for overseas posts and relocate Chinese employees back to China," he said.

China's leading telecom equipment producers also face limited growth potential after rapid growth for years. Huawei, the country's largest telecom equipment maker, saw its profit drop in the second half of 2011, Tian Ying, chief telecom analyst at Gartner, told the Global Times Tuesday.

They need to cut prices to win bigger market share and seek for new market opportunities, both of which require large investments and will further dent their profits, Tian said.

Moreover, ZTE and Huawei could not benefit from the North American market which has a relatively high profit margin, due to the trade barriers set by the local governments, said Tian.

ZTE and Huawei have frequently been victims of trade protectionism. The EU launched an anti-dumping investigation into the two companies in May and ZTE came under scrutiny of the FBI in the US in March for selling banned equipment to Iran.

"We hope ZTE will receive objective, fair and proper treatment from the US," said Shen Danyang, spokesman of the Ministry of Commerce, at a press conference Tuesday.

ZTE and Huawei need to change market strategy like their Western rivals Ericsson and Alcatel-Lucent have already done to boost profits through services, Tian said. 


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