ZTE profits up as it eyes worldwide expansion

ZTE, the mainland's second-largest telecommunications equipment maker, plans to step up international expansion after posting strong earnings in the first quarter.

The Shenzhen-based company yesterday reported net profit for the quarter to March rose 16 per cent to 127.29 million yuan (HK$151.36 million), from 109.86 million yuan a year earlier. This was on the back of high demand for its 2G handsets, 3G smartphones and data card products in the United States and Europe.

Revenue climbed 13.8 per cent to 15.08 billion yuan from 13.26 billion yuan the previous year.

Sales of its carrier network business grew 1.6 per cent year on year, compared with a robust 51.04 per cent increase for its terminal products business. There was a decline of 0.26 per cent in sales of telecommunications software and services and other products.

'The group seeks to capitalise on opportunities presented by increasing broadband penetration, as well as upgrades to wireless network equipment, and demand for smart terminals in the global market,' ZTE chairman Hou Weigui said in a statement.

ZTE last week signed a deal with Spanish banking giant Banco Santander that provides an export line of credit of up to US$500 million, guaranteed by the mainland government's export finance agency Sinosure, also known as China Export and Credit Insurance Corp. The mainland firm will draw on the credit line to finance sales of its products in Europe and South America.

'It appears that ZTE is targeting market share gains this year at the expense of margins,' Lisa Soh, an analyst at Macquarie Securities in Hong Kong, said in a report.

Soh said ZTE's focus on its terminals business was expected to generate improved margins because of growing 3G smartphone sales. That gain, however, would be offset by lower margins in the tough network equipment market, where competitors include Huawei Technologies, Ericsson, Alcatel-Lucent and Nokia Siemens Networks.

Roaring ahead

ZTE's revenue increase for the first quarter of 2011, compared to the period a year earlier: 13.8%