ZTE experiences decrease in first half profits

23 August 2012 | Kavit Majithia


China-based equipment vendor ZTE reported an 85% decrease in net profits compared to results from June last year, with net earnings dropping by 68%.

ZTE reported net profits of $14.8 million for the quarter ending in June, with the results complying with a warning issued by the company last month.

ZTE attributed the decline to delayed orders from operators and foreign exchange losses because of the European economic crisis. It is the company’s steepest drop since it went public six years ago.

ZTE has now followed the trend of recent weak financial results from telecoms vendors, with Huawei, market leader in China, reporting a 22% decline in first half operating profits, and Ericsson reporting a 63% decline in net income to $172 million compared to a year ago.

According to BOCI Research, China’s telecoms operators spent only a third of their projected full year capital expenditure in the first half of year, and analysts doubt there will be any immediate significant increase.

The Financial Times says the low amount of orders will not increase by the end of the year, and ZTE’s position could be further compromised by the fact that Chinese operators are not expected to receive 4G mobile licences until 2014.

Development of handsets is expected to improve ZTE’s position in the long term, but even this business is depressing its margins at present.

Both ZTE and Huawei are also facing probes in the EU for receiving unfair subsidies from the Chinese government, and are under investigation by the Department of Commerce and the FBI for selling equipment to Iran.