ZTE first-half net profits seen speeding up on 4G network growth
Launch of the latest mobile protocol to boost the revenue growth of equipment companies on the mainland in the first half, analysts say
ZTE Corp, the largest listed telecommunications equipment supplier on the mainland, is expected to see a significant jump in revenue and profit, owing to the country's introduction of fourth-generation (4G) networks, industry experts say.
In July, the company revised up its estimated net profit for the first half of the year to between one billion yuan (HK$1.26 billion) to 1.15 billion yuan, up from a target of 800 million yuan to one billion yuan set in April. ZTE posted a net profit of 310 million yuan in the period last year.
The increases in both gross profit margin and gross profit for the first half is "due to ongoing strengthening of management over contract profitability, improvement in gross profit margin for international projects as well as an increase in the operating revenue from domestic 4G systems projects as a percentage of total operating revenue", the company said in a earlier filing to the Hong Kong stock exchange.
The Shenzhen-based company will report its results on Wednesday.
Yan Chengyin, an industry analyst at Bayes Consulting in Beijing, said the launch of the 4G network at the end of last year on the mainland boosted the revenue growth of telecommunications equipment companies including ZTE.
"The momentum is expected to continue in the second half, as after the TD-LTE licence, China Unicom and China Telecom were also granted FDD-LTE licences this year," Yan said.
He said telecommunications companies will accelerate the building of 4G networks and ZTE will benefit as the leading contractor.
The infrastructure required by 4G projects will help ZTE achieve higher revenue in the second half than in the first six months, according to Yan.
On handset shipments, ZTE is under going some restructuring. The company earlier announced it would cut the devices it offers by 50 per cent, based on the 176 smartphone types in its mainland catalogue last year.
ZTE used to ship huge quantities of low-end mobile phones but now wants to expand into the middle to high-end range where the profit margin is more attractive, and concentrate resources on a number of star products.
Cinda International senior analyst Hayman Chiu said ZTE's share in the domestic smartphone market might decrease as the competition intensifies.
ZTE executive vice-president Zeng Xuezhong has said that the mainland, with almost 1.3 billion mobile subscribers as of May 31, is the world's most competitive market.
Besides market leader Samsung and Apple, a dozen domestic manufacturers - including Huawei, Lenovo, TCL and Xiaomi - compete for users.
A report by market research firm Kantar Worldpanel ComTech shows that between January and May this year, ZTE ranked No8, with a market share of only 2 per cent. On top were Samsung with 23 per cent, Xiaomi with 21 per cent and Apple with 16 per cent.
Internationally, smartphone shipments hit a record of 295.3 million units in the second quarter, an increase of 23.1 per cent year on year, according industry research firm IDC.
