ZTE logs Q3 loss for the first time

Chinese firm ZTE Corp has reported a huge $310 million loss during the third  quarter amidst changes in accounting systems in China and project delays. The reported loss is the first for the company, the fourth biggest manufacturer of cell phones and the fifth biggest maker of networking gear in the world.

ZTE executive Shi Lirong had previously forecasted a quarterly loss of 2 billion yuan, which triggered a sharp drop in its stock price in October 15, warnings from Fitch ratings agency, as well as self-imposed salary cuts for its executives.

Last year’s third quarter saw a profit of 299 million yuan.

source: reuters

Analyst Michael Li of Everbright Securities from Hong Kong said: “Things should move up from here, in terms of profitability and margins. We have to watch whether their telecom equipment business overseas picks up.”

ZTE, together with local rival Huawei, has also faced accusations from the United States House Intelligence Committee about its link with the Chinese military and the potential of it spying for its mother country. Both firms deny the allegations.

ZTE gets almost half of its revenue by making telecommunications equipment, while is mobile phone division-which makes dongles, handsets, and tablets–contributes about a third. ZTE has around 80,000 workers and gets more than 50 percent of its income abroad.

The company recently sold a majority stake in its ZTE Special Equipment Co (ZTEsec). The division manufactures surveillance systems to law enforcement agencies and governments.

A recent investigation by Reuters also uncovered ZTE’s transaction with Iran by selling surveillance system that can filter mobile, landline and internet communications. The report also mentioned ZTE’s agreement to sell U.S. computer equipment included in current embargo list against Iran.  After the report, ZTE said it was terminating its business with Iran.

ZTE blames delays in some of its international telecom projects  as well as decreasing businesses in Asia and Europe. However, the company said it expects that the full year will still be profitable.

Analysts forecast that the company’s net profit for the full year will see 642 million yuan.

Competing against Alcatel-Lucent SA, Nokia-Siemens, and Ericsson in making networking gear for telecommunication firms,  ZTE has been beset by many project delays in the profitable African market, as well as dwindling sales in Europe as more EU members are succumbing to the present debt crisis.

Trying its luck in the lucrative smartphone market with its Grand series had not seen any significant progress.  ZTE is yet to make its name heard by consumers as it fell way behing  Apple Inc and Samsung Electronics Co Ltd.

The company made 8 million smartphones last April to June and 25 more million units are expected to be shipped this year according to its executives.

ZTE is hoping to cash in next year when China Mobile Ltd is expected to expand its 4G network.

ZTE’s market value has decreased to almost half this year, putting it below $5 billion.

The company has recently changed the way it logs new contract revenues in China. The practice before only involved signed procurement contracts with provincial telecom carriers. Now ZTE requires a stricter way of getting agreements from head offices, greatly extending the time of conducting some deals.