August 11 -- ZTE Corporation (000063, 0763.HK) posted a 12.42 percent year-on-year decline in first half 2011 net profit to 769 million yuan despite a 21.55 percent growth in revenue to 37.35 billion yuan, reports China Business News, citing a company filing.

Revenue from the domestic market increased 6.9 percent year-on-year to 16.54 billion yuan in the first half, accounting for 44.3 percent of the total.

Revenue from overseas markets increased 36.4 percent year-on-year to 20.81 billion yuan.

The gross margin of its telecommunications products business fell 34.51 percent, while that of its mobile phone business was down 19.63 percent, resulting in a 3.69 percentage points year-on-year drop in its gross margin to 29.76 percent.

This was the first time that ZTE recorded gross margins of less than 30 percent.

In addition, the base was higher last year as ZTE had obtained a value-added tax rebate of 363 million yuan in 2010.

Analyst Zhao Hailin from iSuppli said the mobile phone business had accounted for an increasing proportion of ZTE’s total revenue in recent years. which resulted in lower gross margins.

The slower growth in the domestic market was due to changes in the company's management team in the first half which resulted in the suspension of bidding for potential businesses, said Zhao.

ZTE is competing with Huawei in the global Android smartphone market and had reduced the prices of its mobile phones by more than 30 percent in the first half.

Executive vice president and executive director of ZTE, He Shiyou, had said in April that the company is targeting sales of 12 million units of smart terminals this year.

Of the mobile terminal sales recorded last year, the domestic market accounted for 30 percent, while the overseas market contributed 70 percent.

The European and American markets accounted for almost 20 percent of the total sales.