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ZTE earnings dive 47pc on weak domestic sales

ZTE

ZTE Corp, China's second-largest telecommunications equipment maker, said net profit plunged 47 per cent in the six months to June as its efforts to expand in emerging markets failed to offset falling domestic sales dragged down by a price war.

The Shenzhen-based company, which warned last month that its first-half results would fail to meet expectations, has turned to emerging markets in search of growth in large measure because its technology is not competitive in more developed countries.

Net profit slumped to 347.1 million yuan from 660 million yuan in the same period last year.

Sales rose 1.82 per cent to 10.49 billion yuan. All of the gains came from emerging markets which grew 25.8 per cent to 3.96 billion yuan or 37.8 per cent of total revenue in the first half from 3.15 billion yuan or 30.5 per cent of total revenue in the same period last year.

Domestic sales fell 8.8 per cent to 6.52 billion yuan or 62.2 per cent of total sales in the first half from 7.16 billion yuan or 69.5 per cent a year ago.

The drive into such emerging markets as Pakistan, Egypt and Nigeria helped drive operating expenses up 8.4 per cent and sparked a surge in accounts receivable to 6.34 billion yuan as of June 30 from 4.68 billion yuan at the same time last year. Most of that increase is attributable to emerging markets since receivables on the mainland fell.

At the same time, the company's cash position weakened, with cash and cash equivalents falling 29 per cent to 2.85 billion yuan as of June 30, down 834 million yuan from the same time last year.

Mr Yiu discounted the importance of the swelling accounts receivable, saying it was acceptable in emerging markets where annual growth rate can reach 30 per cent.

However, the company promised to move to address the problem. 'In the second half, we will strive to strengthen management of international sales and marketing,' ZTE chairman Hou Weigui said in a statement.

ZTE president Yin Yimin said: 'Overseas markets will be our focus in the coming years because China has already become a stable market, and these markets will surely bring more revenue to us this year.'

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