ZTE posts US$85 million quarterly profit, rebounding from loss a year ago, on back of 5G equipment business

Li Tao

ZTE Corp, China’s second largest telecommunications equipment manufacturer, moved another step closer to its predicted turnaround this year, after posting a 607 million yuan (US$85 million) net profit in the quarter ended June 30 to rebound from a 2.4 billion yuan loss a year ago.

Revenue in the second quarter jumped 188 per cent to 22.4 billion yuan, up from 11.9 billion yuan in the same period last year, on the back of growing 5G network equipment sales in China and overseas markets, according to the company’s regulatory filing on Tuesday after the markets closed in Hong Kong and Shenzhen.

The world’s fourth largest telecoms gear supplier said in June that it had secured more than 25 commercial 5G network contracts and that more deals were in the works, based on its 5G partnership commitments with more than 60 mobile network operators around the world.

Shenzhen-based ZTE’s second consecutive quarter of positive financial results strengthens its bid for a turnaround this year. That followed its record annual loss of about 7 billion yuan in 2018, when the company ceased major operating activities for nearly four months from April because of sanctions imposed by Washington as punishment for violating US export rules.

Chinese telecommunications equipment maker ZTE Corp displays its range of 5G mobile base stations at the annual MWC Barcelona trade show, held in the Spanish city in February this year. Photo: Bien Perez

Shares of ZTE in Hong Kong closed virtually unchanged at HK$19.70 on Tuesday before the announcement.

The company projected its net profit for the nine months ended September 30 to range from 3.8 billion yuan to 4.6 billion yuan.

It also said efforts are being focused on developing basic operating systems, distributed databases, core chipsets and other hi-tech advances to support its 5G business.

Despite the recovery last quarter, more challenges lie ahead for ZTE, according to analysts.

Steady demand for ZTE’s 5G network equipment from developed economies remains uncertain because of ongoing trade tensions between the United States and China, said Jones Ku, an analyst at Haitong International, in a report last week.

5G to stimulate US$500 billion in China tech growth over next five years, government researcher projects

The Trump administration announced earlier this month a ban on US federal agencies buying equipment and services from Chinese companies, including telecoms gear suppliers Huawei Technologies and ZTE, citing national security concerns.

Jefferies recently cut annual revenue forecasts for ZTE from this year to 2021 because of fierce competition in China from industry leader Huawei as well as major overseas suppliers Nokia and Ericsson, according to analyst Edison Lee. He said China’s three telecoms network operators are also negotiating hard for lower prices on 5G network gear, which is putting pressure on ZTE’s margins.

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