ZTE Corporation, China’s second largest telecoms equipment manufacturer, issued a warning on Friday 13 July 2012 that its net profit for the first half of 2012 may fall by 60%-80% compared with the same period in 2011. Company shares have fallen by 17% on the news.
ZTE said it expected its net profit to be between Rmb154m and Rmb308m (£15.4m-£30.9m) for the first half of 2012. This compares with a net profit of Rmb769.2m (£77.3m) for the first half of 2011.
The company attributes the expected fall in net profit to several causes, including a decline in investment income. Last year profit was boosted by sales of some of its share holdings in microchip manufacturing firm Nationz Technologies. This year, its remaining share holdings in the company have been reclassified from a long-term equity investment to trading financial assets for accounting purposes, leading to a Rmb900m (£90.4m) write down.
Secondly, the company has been hit by exchange rate losses following significant depreciation in the euro and other currencies. Lastly, it has also suffered a fall in income in China where ‘certain domestic carrier network contracts were not recognised in the results for the current reporting period given the postponement of the tender activities of carriers’.
There has also been a decline in the overall gross profit margin of the company compared with the same period last year, as competition remains fierce in both the mobile handset market and the telecom equipment market.
ZTE is the second major telecom manufacturer to issue a profit warning along with Alcatel-Lucent, which warned that it expects to post an adjusted operating loss of €40m (£31.4m) with revenues above €3.5bn (£2.7bn) for the second quarter of 2012.