ZTE shares fall sharply on profit warning

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Tuesday, 05 May, 2015, 9:20am

ZTE Corp, the mainland's second-largest telecommunications equipment manufacturer, saw a steep drop in its share price after the company projected a massive third-quarter loss.

The Shenzhen-based company's stock fell up to 17.2 per cent in early trading yesterday before finishing at HK$10.56, down 15.8 per cent and its lowest close since September 12.

It marked more bad news for ZTE after a United States congressional panel last week branded the company and Huawei Technologies as security risks in the US, following an 11-month investigation.

The House of Representatives Intelligence Committee recommended that both companies be barred from acquiring US assets and from supplying any equipment to telecommunications network projects in the US.

In a filing with the Hong Kong stock exchange on Sunday, ZTE chairman Hou Weigui said the net loss in the quarter ended September could be as large as 2 billion yuan (HK$2.47 billion), compared with a 299.3 million yuan net profit a year earlier.

The loss was blamed on delays in various telecommunications network projects overseas, the change in buying method adopted by the mainland's three major carriers, a backlash over the firm's alleged deals with Iran, and "a larger number of low-margin contracts in Europe, Asia and the domestic market".

Bernstein Research senior analyst Pierre Ferragu described ZTE's third-quarter loss as "abysmal", despite recording a 365 million yuan one-off gain from the disposal of its interests in Shenzhen ZTE Special Equipment.

"Loss-making contracts will drag the company far longer than they want to believe," Ferragu said.

He also said he expected more margin pressure on smartphones "as sales are absolutely not picking up outside of China".