ZTE's Third-Quarter Earnings Dive as Telecom Gear Maker Recovers Post US Ban
Li Na
DATE:  Oct 27 2018
/ SOURCE:  Yicai
ZTE's Third-Quarter Earnings Dive as Telecom Gear Maker Recovers Post US Ban ZTE's Third-Quarter Earnings Dive as Telecom Gear Maker Recovers Post US Ban

(Yicai Global) Oct. 26 -- ZTE's earnings slumped in the third quarter, dragged down by fines linked to the lifting of a US ban on technology sales to the company. China's second-biggest telecoms equipment maker now forecasts a loss for the year.

Net profit attributable to shareholders fell 65 percent to CNY564 million (USD81 million) in the three months ended September, from a year earlier, on a 14 percent decline in operating revenue to CNY19.3 billion (USD2.8 billion), the Shenzhen-based company said yesterday. That compares with its August projection for profit of up to CNY1.02 billion.

The three-month-long denial or export order that the US Commerce Department slapped on ZTE in April for violating sanctions against Iran and North Korea, and lying about it, almost brought the company's operations to a complete halt. The enfeebled earnings results are attributable to the USD1 billion penalty and the additional suspended USD400 million penalty the US government imposed.

"Orders have been lost in our international business because of the impact of the US ban," new company President Xu Ziyang said at an extraordinary shareholders meeting in August. "But a majority of international operators still remain confident and patient with ZTE, and the company is engaged in point-to-point negotiations with key operators in the world, and these have received good feedback."

ZTE's Shenzhen-listed stock [SHE:000063] lost 1.09 percent today, closing at CNY17.25 (USD2.48), while its Hong Kong-traded shares [HKG:0763] fell almost 2 percent to HKD11.92 (USD1.52).

Full-Year Loss Forecast

In the nine months through September, ZTE had a net loss of CNY7.26 billion on a 23 percent slide in operating revenue to CNY588 billion. Operating and accrued losses stemmed from the temporary halt of its main business activities following the ban on ZTE buying US-made semiconductors it needs for its products, the company said.

The company forecasts a full-year loss of between CNY6.2 billion and CNY7.2 billion. It had profit of CNY4.6 billion last year.

Third-quarter research and development costs jumped 37.5 percent to CNY346.5 million because of the firm's continued investment in core technologies such as 5G wireless, core networks, bearers, access and chips during the period. Technologies like 5G are seen as an important to ZTE's recovery.

Production has returned to normal and R&D progress has caught up with targets set at the start of the year, Xu said in August. The firm's 5G testing schedule has also fully caught up with national testing progress, and after-sales service has recovered.

ZTE plans to seize the opportunity of 5G's large-scale commercial application to realize rapid development in 2020, Xu added. Still, the firm's share of the North American Mobile Infrastructure Radio Access Network market dropped to fifth after the US ban, per data from industrial research institute Dell'Oro Group.

Editor: Ben Armour

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Keywords:   MSCI,US,5G,Revival