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ZTE braces for whopping loss on sales slump and Iranian links

Victor Cheung

Monday, October 15, 2012

ZTE Corp (0763) is set to face its first quarterly loss in at least 10 years amid a sales slowdown and investment delays across the globe.

The mainland telecommunications equipment maker expects to incur a net loss of 1.9 billion yuan (HK$2.35 billion) to 2 billion yuan for the three months to September 30, compared to net profit of 299 million yuan last year.

For the first nine months of 2012, the Shenzhen-based firm expects to accumulate a loss of between 1.65 billion and 1.75 billion yuan, from a profit of 1.07 billion yuan earned during the same period last year.

Operating revenue in the third quarter fell 13 percent year-on-year because of delays in some overseas projects, ZTE said in a statement.


Gross margin contracted by 13 percentage points, reflecting more low-margin contracts it had to undertake in Europe, Asia and the mainland.

Also, ZTE dealings with Iran had a negative impact on performance, as they were investigated by the US Department of Commerce and Department of Justice.

The firm not only faces an investment slowdown in China's 3G mobile phone network, but also pressure from the United States.

US lawmakers, in a report last week, urged American companies not to do business with ZTE and mainland rival Huawei due to security concerns.

Following the report, computer network specialist Cisco Systems terminated its strategic partnership with ZTE.

ZTE shares plunged 4.3 percent to HK$12.54 last Friday, and were down 6.4 percent for the week.

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